Oppenheimer’s Chief Strategist Warns: Don’t Underestimate Inflation’s Impact on the Stock Market

Robert S. Kaplan, the chief strategist at Oppenheimer Market Intelligence, has warned investors not to underestimate the potential impact of inflation on the stock market. In a recent note, he wrote that with inflation rising more quickly than expected due to the rapid expansion of the money supply, investors should be aware of the risks that inflation can pose.

Insights from Oppenheimer’s Chief Investment Strategist

The stock market is a reflection of investors’ expectations, and one crucial factor influencing those expectations is the Federal Reserve’s monetary policy. As we approach the end of 2023, there’s a growing debate about whether the Fed will continue raising interest rates or hit the pause button. In this article, we’ll explore the insights shared by Oppenheimer’s chief investment strategist, John Stoltzfus, regarding the Fed’s future moves and their potential impact on the stock market.

Right-Sizing Expectations for Investors: John Stoltzfus begins by urging investors to “right size” their expectations. While many in the market are hoping for a long pause or even a rate cut from the Fed, Stoltzfus advises caution. He doesn’t alter his year-end target for the S&P 500, maintaining it at 4,900, but highlights that inflation remains distant from the Fed’s 2% goal. This divergence between investor expectations and economic reality could have significant consequences.

Stoltzfus’ Perspective on Inflation: Inflation remains a key concern for the Federal Reserve. Stoltzfus notes that the latest Consumer Prices Index (CPI) reading is expected to show a 3.6% increase over the previous year in August, up from July’s 3.2%. On a “core” basis, which excludes volatile food and energy categories, CPI is projected to rise 4.3% over the prior year in August, although this represents a slowdown from July’s 4.7% increase. These figures underscore the persistence of inflationary pressures.

The Stickiness of Prices: Stoltzfus emphasizes that certain categories, including food, services, and energy, continue to exhibit price stickiness. This stickiness in prices, despite the Fed’s rate hike cycle, prompts Stoltzfus to advise vigilance. He suggests the possibility of one more rate hike this year and potentially another in the following year.

Market Expectations vs. Fed’s Stance: As of Monday morning, the market had priced in a 93% chance that the Fed would keep interest rates steady during its September 19-20 meeting. Looking ahead, markets were assigning a 50%-plus probability that rates would remain unchanged through the end of 2023. These market expectations contrast with Stoltzfus’ cautious stance.

Hawkish Bias in the Fed: Wells Fargo’s chief economist, Jay Bryson, concurs with Stoltzfus. He anticipates that the Federal Reserve’s post-meeting statement will signal a continued hawkish bias. Instead of hinting at an extended pause, the statement is likely to mention considerations for “additional policy firming.” This approach allows the Fed to maintain flexibility for future decisions.

Energy Prices and Investment Opportunities: One of the significant contributors to inflation is energy prices, which have surged over 25% since late June. This surge has led to higher gasoline prices and poses a threat to industries heavily reliant on fuel costs.

Investment Opportunity in Energy: Interestingly, Stoltzfus and his team at Oppenheimer see this surge in energy prices as an investment opportunity in the stock market. Notably, the rise in oil prices hasn’t been reflected in energy sector exchange-traded funds (ETFs). Stoltzfus believes that the S&P 500 energy sector is becoming increasingly attractive as policymakers in the US and abroad work to contain inflation and support economic growth.

Factors Boosting the Energy Sector: Oppenheimer’s optimism about the energy sector is rooted in several factors. Firstly, state-side infrastructure projects are expected to drive demand for energy. Additionally, chip manufacturing efforts are set to boost the sector, as chips are integral components in various technological applications.

Conclusion: As we approach a critical period for the Federal Reserve and the stock market, it’s essential for investors to heed the advice of experts like John Stoltzfus. Right-sizing expectations in a market influenced by inflation and the Fed’s monetary policy are crucial for making informed investment decisions. While the Fed’s actions may not always align with market expectations, understanding the underlying economic factors can help investors navigate the uncertain terrain of the stock market.

FAQs on the Federal Reserve, Stock Market, and Inflation

  1. FAQ: What role does the Federal Reserve play in the stock market, and why are investors concerned about its actions?Answer: The Federal Reserve, often referred to as the Fed, is the central bank of the United States. It plays a crucial role in the stock market because its monetary policy decisions, such as changes in interest rates, can impact borrowing costs and the overall economy. Investors closely monitor the Fed’s actions because they can influence market sentiment and asset prices.
  2. FAQ: Why is inflation a significant concern for both the Federal Reserve and investors in the stock market?Answer: Inflation is a concern because it erodes the purchasing power of money. The Federal Reserve aims to maintain price stability by targeting an inflation rate of around 2%. When inflation exceeds this target, it can lead to uncertainty in the markets. High inflation can erode the real returns on investments, affecting stock and bond prices.
  3. FAQ: What does “right-sizing expectations” mean in the context of the stock market and the Federal Reserve?Answer: “Right-sizing expectations” means adjusting one’s expectations to align with economic realities. In the context of the article, it refers to the advice given by John Stoltzfus, suggesting that investors should temper their enthusiasm for a prolonged pause or rate cut by the Federal Reserve. It’s a reminder that market expectations should be realistic based on economic conditions.
  4. FAQ: Why is the energy sector considered an investment opportunity despite rising oil prices?Answer: Despite rising oil prices, the energy sector can be an investment opportunity. This is because higher energy prices can benefit energy companies, leading to potential stock price increases. Additionally, investments in infrastructure projects and chip manufacturing efforts can drive demand for energy, further supporting the sector.
  5. FAQ: How can investors navigate the stock market amidst uncertainty about the Federal Reserve’s actions?Answer: Investors can navigate the stock market by staying informed about economic indicators, especially inflation rates and the Federal Reserve’s monetary policy announcements. Diversifying their investment portfolio can help mitigate risks associated with market volatility. Seeking advice from financial experts and considering long-term investment goals is also advisable in uncertain times.


  1. Federal Reserve
  2. Stock market
  3. Inflation
  4. Monetary policy
  5. Interest rates
  6. Economic indicators
  7. Investment strategies
  8. Energy sector
  9. Stock market volatility
  10. Economic conditions

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