‘Goldilocks’ Jobs Report Pushes the Markets Higher

Performance for Week Ending 5.3.2024:

The Dow Jones Industrial Average (Dow) gained +1.14%, the Standard & Poor’s 500 Index (S&P 500) added +0.55% and the Nasdaq Composite Index (NASDAQ) rose by +1.43%. Sector breadth was positive with 7 of the 11 S&P sector groups closing higher. The Utilities sector (+3.35%) was the best performer followed by Consumer Discretionary (+1.60%) and Real Estate (+1.53%).

*See below for Index Definitions

MARKET OBSERVATIONS: 4/29/2024  – 5/3/2024

The S&P 500 finished higher for second straight week as investors digested the outcome to the FOMC meeting, a slew of earnings reports, and data showing the labor market starting to cool. On Friday, the Labor Department released the closely watch monthly payroll data. The report, measuring labor stats during April, showed nonfarm payrolls expanded by 175K, well off the 315K pace during March and below the 240K expected by economists. The unemployment rate rose by 0.1% to 3.9% while average hourly earnings fell to a 3.9% year over year rate from 4.1% in the prior month and the slowest pace of growth in three years. The report was viewed as a ‘Goldilocks’ outcome (not too hot, not too cold) as the data paints a picture of a labor market that is cooling but not weak. Fed officials should also be comforted by the report as it shows that the labor market is coming into better balance and that policy is restrictive enough to cool off labor demand. Speaking after the release of the report, Chicago Fed President Austan Goolsbee said the employment data boosted confidence the economy is not overheating.

FOMC Meeting: As widely expected, the Fed left rates unchanged at the conclusion of its two-day gathering as progress on battling inflation has stalled in recent months. The central bank kept its benchmark short-term borrowing rate in a targeted range between 5.25%-5.50%, a level that been in place since July 2023, when the Fed last hiked rates. In the after-meeting communique, the Fed stated that "in recent months, there has been a lack of further progress toward the Committee's 2 percent inflation objective." Furthermore, it noted that “the economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.” The Fed said it does not expect it will be appropriate to cut rates until it has gained greater confidence inflation is moving sustainably toward 2%. The Fed statement also indicated that risks to achieving employment and inflation goals “have moved toward a better balance over the last year.” The FOMC also outlined a plan to gradually reduce its holdings of Treasury securities and agency debt, marking a shift toward normalizing its balance sheet. At the after-meeting press conference Fed Chair Powell had a mildly dovish tone and indicated it was “unlikely” the next move would be a hike. The comment seemed to ease concern about the prospect of further tightening if inflation remains sticky.

Economic Roundup: It was a big week for labor related data. In addition to the monthly payroll report the Labor Department released the latest Job Openings and Labor Turnover Survey (JOLTS). The report showed job openings declined modestly in March to about 8.48 million jobs, a decrease from the 8.81 million job openings in February. The survey also showed the quits rate, a sign of confidence among workers, fell to 2.1%, its lowest level since August 2020. Meanwhile, weekly jobless claims were unchanged at 208K in the week ending April 27. The four-week moving average—which helps smooth the week-to-week volatility—edged down to 210K from 213.5K in the previous week. Elsewhere, consumer confidence fell in April to the lowest since mid-2022 as Americans’ views of the labor market and their outlook for the economy deteriorated. The Conference Board’s gauge of sentiment decreased to 97 from a downwardly revised 103.1 in March, the third straight decline. Lastly, the latest ISM Manufacturing data showed activity declined in April, after turning positive the month prior. The ISM's Manufacturing PMI for April came in at 49.2 from 50.3 during March, suggesting a contraction in the sector (Note: readings above 50 signal expansion, while readings below 50 signal contraction). The report also showed that prices paid for manufacturers rose for the fourth straight month, with the sub-index expanding to a measure of 60.9 from 55.8 in March.

Q1 EPS Season: Through Friday, 400 members of the S&P 500 have released results with just under 80% beating expectations. Aggregate earnings for this group are up 4.3%, 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 6.5% growth for the overall quarter. On the sector front, the strongest growth is coming from Communication Services (+42.3%) and Consumer Discretionary (+40.6%). On the flip side, Healthcare (-27.9%) and Energy (-25.4%) have posted the weakest results.

The Week Ahead: It will be a relatively quiet week on the data front. Highlights on the economic calendar include wholesale inventories, jobless claims, and the University of Michigan consumer sentiment index. First quarter earnings season continues to wind down with just 56 members of the S&P 500 scheduled to release results. Included in this group is Dow-component Walt Disney. It will be a busy week for Fedspeak with 12 Fed heads scheduled to present. Investors are also expected to keep an eye out for the latest senior loan officer survey data from the Fed to assess credit conditions in the economy.

— 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.