Fed Meeting on Deck

Performance for Week Ending 4.26.2024:

The Dow Jones Industrial Average (Dow) gained (+0.67%), the Standard & Poor’s 500 Index (S&P 500) added 2.67% and the Nasdaq Composite Index (NASDAQ) rose by 4.23%. Sector breadth was positive with all 11 of the S&P sector groups closing higher. The Technology sector (+5.11%) was the worst performer followed by Consumer Discretionary (+3.50%) and Communication Services (+2.72%).

*See below for Index Definitions

MARKET OBSERVATIONS: 4/22/2024  – 4/26/2024

The S&P 500 finished the week higher, breaking a three-week losing streak, driven by strong gains in the Technology space. The tech sector gained 5.1%, it’s best weekly performance since last November, following a batch of better-than-expected quarterly earnings updates. Markets powered ahead even though the likelihood of Fed rates cuts lessened following data underscoring that inflation remains sticky. On Friday, the Fed’s preferred inflation gauge, the so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.3% from the prior month. From a year ago, it advanced 2.8%, slightly above the 2.7% pace expected by economists. The report followed data earlier in the week showing the Q1 GDP core pricing component jumping to a higher than expected 3.7% rate, nearly double the 2.0% pace in the fourth quarter. According to Bloomberg’s World Interest Rate Probability tool, the fed funds futures market is now discounting only 35 basis points of easing by year end, well off the 150 basis points of expected easing at the start of this year.

Economic Roundup: The US economy grew during the first quarter at the slowest pace in almost two years as consumer and government spending cooled amid a sharp pickup in inflation. GDP increased at a 1.6% annualized rate and was below the 2.5% estimated pace. The economy’s main growth engine — personal consumption — rose by 2.5%, well short of the forecasted gain of 3.0%. Meanwhile, the core PCE price index, a closely watched measure of underlying inflation, advanced at a hotter-than-expected 3.7% clip, the first quarterly acceleration in a year. On the housing front, sales of new homes bounced back in March with new single-family home sales increasing by 8.8% to a 693K annual pace, the fastest since last September. The strong gain in housing sales came amongst a rise in mortgage rates, with the Mortgage Bankers Association reporting the rate on a 30-year fixed mortgage increased 11 basis points to 7.24%, the highest since late November. Elsewhere, US business activity expanded in April at the slowest pace this year due to a pullback in demand. The S&P Global flash April composite index of output at manufacturers and service providers slipped 1.2 points, the most since August, to 50.9. The group’s measure of employment slid 3.2 points to 48, reflecting shrinking services payrolls and slower growth at manufacturers. New business at service providers shrank for the first time since October, with some firms indicating higher borrowing costs and still-elevated prices were limiting demand.

Q1 EPS Season: Through Friday, 228 members of the S&P 500 have released results with just over 80% beating expectations. Aggregate earnings for this group are up 3.4%, slightly ahead of expectations at the start of earnings season. The high beat rate coupled with the better than feared results has led to upward earnings revisions, with analysts now expecting 4.75% growth for the overall quarter. On the sector front, the strongest growth is coming from Communication Services (+41.5%) and Technology (+29.1%). On the flip side, Healthcare (-35.7%) and Energy (-25.4%) have posted the weakest results.

The Week Ahead: The two-day Federal Open Market Committee (FOMC) will take center stage this week. Following the recent streak of stronger than expected inflation data and the weaker than expected first quarter GDP, investors are expected to parse the after-meeting statement and listen intently to Fed Chair Powell press conference for clues on the Fed’s policy path going forward. The focal point of this week’s data calendar will be the April payroll report on Friday. According to Bloomberg, economists expect nonfarm payrolls to rise by 250K while the unemployment rate is forecast to be unchanged at 3.8%. The Friday release will be preceded by the ADP Employment Change and JOLTS reports on Wednesday. Other reports of interest will be the ISM indices due Wednesday (manufacturing) and Friday (services). The Conference Board's consumer confidence, as well as productivity indicators will also be watch closely. It will be the peak earnings week with 166 members of the S&P scheduled to release results. Included in this group are 6 members of the Dow Jones Industrial Average, including Amazon and Apple. Outside of the FOMC meeting it will be a relatively quiet week in terms of Fedspeak with only Chicago Fed President Goolsbee slated to speak on Friday evening. Investors will also be watching the US Treasury's quarterly refunding announcement on May 1st as well as the borrowing estimate due Monday.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market Index^SM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500^© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.