Fed Meeting on Deck – No Cuts Expected

Performance for Week Ending 6.7.2024:

The Dow Jones Industrial Average (Dow) added 0.29%, the Standard & Poor’s 500 Index (S&P 500) gained 1.32% and the Nasdaq Composite Index (NASDAQ) tacked on 2.38%. Sector breadth was mixed with 5 of the S&P sector groups closing higher and 6 closing lower. The Technology sector (+3.83%) was the best performer while Utilities (-3.93%) was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 6/3/2024  – 6/7/2024

The S&P 500 finished the week higher, marking the sixth weekly gain in the past seven. During the week both the S&P and Nasdaq posted new all-time highs. Stocks gained in the early part of the week on building signs the economy is cooling, which in turn, reinforced bets that the Fed will reduce rates in the coming months. However, on Friday the Labor Department reported that job growth during May was much stronger than anticipated. Nonfarm payrolls rose by 272K from a downwardly revised 165K in April and were well ahead of the 180K gain expected by economists. The report was a favorable sign for economic growth and corporate earnings but resulted in reduced odds of a near-term rate cut. According to Bloomberg’s World Interest Rate Probability tool, the odds of a move at the September Fed meeting fell to 54% from over 80% the prior day.

Economic Roundup: Domestic factory activity shrank in May for a second straight month with the ISM’s manufacturing gauge falling to 48.7 from 49.2 (reading below 50 signal contraction). The forward-looking new orders component slid 3.7 points to 45.4, the biggest drop since June 2022. Meanwhile, the services sector expanded in May by the most in nine months with the ISM’s Service Index jumping 4.4 points to 53.8. Elsewhere, US job openings fell in April to the lowest level in over three years, consistent with a gradual slowdown in the labor market. Available positions decreased to 8.06 million from a downwardly revised 8.36 million reading in the prior month, the JOLTS report showed. On the housing front, mortgage applications for home purchases in the US slid last week by the most since early April as mortgage rates remained above 7%. The Mortgage Bankers Association’s index of mortgage applications to buy a home decreased 4.4% in the week ended May 31, which included the Memorial Day holiday. The contract rate on a 30-year fixed mortgage ticked up 2 basis points to 7.07%, marking the ninth straight week above 7%.

Q1 EPS Season Roundup: The first quarter earnings season is ending with growth coming in much better than initially feared. Through Friday, 497 members of the S&P 500 have released results with just over 80% beating expectations. Aggregate earnings for this group are up 7.8%, more than double expectations at the start of earnings season. On the sector front, the strongest growth has come from Communication Services (+41.4%) followed by Utilities (+30.5%) and Consumer Discretionary (+29.8%). On the flip side, Energy (-25.7%) and Healthcare (-25.5%) have posted the weakest results. A look at full year growth expectations shows analysts forecasting 9.5% growth this year followed by 13.9% growth in 2025.

The Week Ahead: The focal points of the week ahead will be the Fed decision on rates and the consumer price index (CPI) data - both of which are due out on Wednesday. In terms of the Fed, no changes in rates are expected, although investors will parse the after-meeting statement and the updated Summary of Economic Projections report for clues on the timing of the first rate cut. All eyes will also be on the release of the CPI data where economists are expecting the year over year pace of the ‘core’ index to dip to +3.5% from +3.6% in April. Other data reports of interest include the producer price index (PPI) report on Thursday and then the University of Michigan's consumer survey on Friday which will provide insight into consumer inflation expectations. First quarter earnings season will wrap up this week with the remaining members of the S&P 500 expected to release results. The Fed speaking calendar will be relatively quiet due to the FOMC meeting, although there are three Fed officials scheduled to make presentations later in the week.

— 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.