In a significant analysis delivered this Monday, Oppenheimer Asset Management highlighted that a recent downward adjustment in the official annual job growth figures is likely bolstering the Federal Reserve's intention to transition towards a more accommodative monetary policy. This development comes on the heels of preliminary revisions released by the Bureau of Labor Statistics (BLS), which indicate that the U.S.
economy may have generated approximately 818,000 fewer jobs within the year ending in March than previously estimated. At the annual economic symposium held in Jackson Hole, Wyoming, Federal Reserve Chair Jerome Powell stated that "the time has come" for policy easing. He noted that the exact timing and scope of this easing would be contingent upon the latest economic data, emphasizing that inflation levels are now "much closer" to the central bank’s targeted rate of 2%. To counteract inflation, the Federal Open Market Committee (FOMC) had enacted a series of increases to its benchmark lending rate, accruing a total rise of 525 basis points from March 2022 until July 2023.
However, monetary policy has been held steady since then, with the FOMC opting to pause its rate hikes as of late last month. John Stoltzfus, Chief Investment Strategist at Oppenheimer Asset Management, remarked in a client note that the adjusted figures for cumulative payroll gains might have added to the confidence the Fed seeks as it contemplates a policy pivot, despite signs of ongoing economic resilience.
He also cited a concerning rise in the unemployment rate, which increased to 4.3% in July from 4.1%, as a contributing factor to the anticipated shift in Fed policy. Currently, market trends reflect a roughly 70% likelihood that the FOMC will enact a 25-basis-point rate cut on September 18, with some traders also considering the possibility of a more substantial 50-basis-point reduction, per the CME FedWatch tool.
Oppenheimer's analysts predict a likely rate cut next month, potentially followed by two additional cuts of a similar scale in November and December, should economic conditions warrant these actions. Stoltzfus confidently asserted that evidence suggests the Fed is not foreseeing a downturn into recession shortly.
Furthermore, Oppenheimer expects the information technology sector to maintain a leadership role in driving the S&P 500 index higher. This momentum might allow for other sectors to participate and flourish alongside tech. In terms of market dynamics, small- and mid-cap stocks are anticipated to ‘reengage’ with their earlier positive trends observed in the fourth quarter of 2023, along with incremental gains projected for the entire 2024 landscape.
Oppenheimer maintains a preference for cyclicals over defensive sectors while also promoting broad diversification across styles and market capitalizations. According to Oppenheimer, 95% of the firms listed in the S&P 500 index—comprising 477 companies—have disclosed their most recent quarterly financial results, revealing a generally robust growth in earnings overall.
The current earnings growth rate stands at 9.4% compared to the previous year, with revenue up by 4.7%. Notably, nine out of eleven sectors are demonstrating positive earnings growth, with financials showing an impressive increase of 18% and healthcare boasting a 16% upswing. Materials and industrials, however, are the only sectors reporting declines in annual earnings.
Every sector, excluding materials and industrials, has recorded growth in sales year-over-year. Looking ahead, around 16 companies are set to announce their earnings this week, accompanied by four expected to report next week, according to the Oppenheimer note..