Fed Up – No Changes Expected

Performance for Week Ending 12.8.2023:

The Dow Jones Industrial Average (Dow) finished up 0.01 percent, the Standard & Poor’s 500 Index (S&P 500) added 0.21 percent and the Nasdaq Composite Index (NASDAQ) gained 0.69 percent. Sector breadth was mixed with 5 of the S&P sector groups finishing higher and 6 closing lower. The Communication Services (+1.39%) sector was the best performer while the Energy (-3.28%) sector was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 12/4/23  – 12/8/23

The major market indices finished the week little changed, although the S&P 500 managed to squeak out a sixth consecutive weekly gain, the longest winning streak this year. Signs of a cooling labor market, a big jump in consumer sentiment and expectations the Fed will leave rates unchanged at this week’s FOMC meeting kept the bullish tone intact.

Labor Market Data Offer a Mixed Outlook: The Labor Department reported that nonfarm payrolls expanded by a better than forecast 199K during the month of November up from 150K in October. However, the November reading got a onetime boost of 30K workers due to the return of striking autoworkers and the prior two months were revised lower, subtracting 35K jobs. The unemployment rate during the month dipped to 3.7 percent from 3.9 percent and was lower than 3.9 percent rate expected by economists. The jump in payrolls was largely at odds with other labor market data released during the week that suggested a cooling labor market. The Job Openings and Labor Turnover Survey (JOLTS) showed US job openings slumping in October to the lowest level since March 2021. Available positions decreased to 8.7 million from a downwardly revised 9.4 million in the prior month. The decline in openings was broad-based across sectors, with notable drops in health care, financial activities and accommodations and food services. Meanwhile, US companies scaled back hiring in November. According to the ADP Research Institute, private payrolls increased 103K last month, well below the 130K forecast by economists. The data showed further cooling in wage growth. Workers who stayed in their job saw a 5.6 percent median pay bump in November from a year ago, according to the report. For those who changed jobs, wages rose 8.3 percent. Both figures represented the slowest pace of increase since 2021.

In Other Economic Data... The US service sector expanded at a faster pace in November as business activity and employment picked up. The Institute for Supply Management (ISM) report that their services gauge rose 0.9 points to 52.7 last month. The index has remained above the 50 level that indicates expansion for all of this year. A gauge of orders placed with service providers — a proxy of future demand — was unchanged at 55.5. Meanwhile, US mortgage rates fell to the lowest level in almost four months. According to the Mortgage Bankers Association, the contract rate on a 30-year fixed mortgage decreased 20 basis points to 7.17 percent in the week ended Dec. 1. The rate has fallen 69 basis points in the last five weeks, the biggest drop over such a time period since late 2008. Lastly, the University of Michigan’s index of consumer sentiment jumped 8.1 points to 69.4 in the December, well above consensus expectations for a reading of 62.0. The December reading was the strongest since August. Commentary from the University of Michigan indicated that the sentiment improvement was broad based and driven primarily by the expected trajectory of inflation.

The Week Ahead: The final FOMC meeting of the year will get top billing in the upcoming week. While the Fed is widely expected to maintain their policy rate at current levels, investors will be looking for clues in the updated Summary of Economic Projections for guidance on the path forward. All eyes will also be focused on Fed Chairman Powell’s after meeting press conference, where investors will monitor the tone of his presentation. On the data front, the rate decision will be preceded by the Consumer Price Index (CPI) report on Tuesday. According to Bloomberg headline inflation is expected to fall to a 3.1 percent year-over-year pace, while the core rate—which excludes food and energy prices—is forecast to come in at a 4.0 percent rate from year ago levels. Other data reports of interest include the November producer price index (Wednesday) and November retail sales on Thursday. The earnings calendar will be quiet with just 8 members of the S&P 500 Index scheduled to release results. Outside of the two-day FOMC meeting, the Fed speaking calendar is expected to be quiet.

— 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.