S&P 500 Posts Another Fresh Record High

Performance for Week Ending 2.23.2024:

The Dow Jones Industrial Average (Dow) finished up 0.92%, the Standard & Poor’s 500 Index (S&P 500) gained 1.17% and the Nasdaq Composite Index (NASDAQ) added 0.57%. Sector breadth was positive with 9 of the 11 S&P sector groups closing higher. The Materials (+2.41%) sector led the way higher followed by Consumer Staples (+2.27%) and Health Care (+1.80%). On the downside, Communications Services (-0.10%) and Real Estate (0.11%) posted modest losses.

*See below for Index Definitions

MARKET OBSERVATIONS: 2/19/2024  – 2/23/2024

Stocks finished the week higher with both the S&P 500 and Dow Jones Industrials Average finishing at new all-time highs. The S&P has now gained in 6 of the past 7 weeks. Driving the gains last week was the blowout quarterly results from tech darling Nvidia which offset the growing likelihood that the Fed will not begin reducing interest rates until at least June of this year. The better than feared fourth quarter earnings season and resilient economic data also supported the bullish tone.

FOMC Meeting Minutes: The release of the January FOMC meeting minutes contained little in the way of new news. According to the minutes of the Jan. 30-31 meeting policymakers agreed that borrowing costs were likely at their peak, but the exact timing of the first interest-rate cut remained unclear. “Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%.” Only a “couple” of officials pointed to risks to the economy from waiting too long to cut.

Economic Roundup: Initial claims for unemployment benefits fell to the lowest in a month, underscoring continued strength in the labor market despite a growing number of high-profile job cuts at large companies. Initial claims decreased by 12K to 201K in the week ending Feb. 17. US manufacturing activity expanded at the fastest pace since September 2022, powered by stronger orders growth and suggesting producers are breaking out of an extended slump. The S&P Global February purchasing managers index advanced to 51.5 from 50.7. The group’s measure of orders climbed to the highest since May 2022, while factory output expanded the most in 10 months. Sales of previously owned US homes rose in January by the most in nearly a year as buyers took advantage of lower mortgage rates at the start of 2024. Contract closings increased 3.1% from a month earlier to a 4 million annualized rate, after upward revisions to the prior four months, according to National Association of Realtors data. While the pace is the highest since August, it’s still well below that seen in the years leading up to the pandemic.

Fed Speak: Most Fed officials remained in wait and see mode last week. Fed Governor Michelle Bowman argued that the current economic environment doesn’t warrant the central bank cutting interest rates. “Certainly not now,” Bowman said while answering a question about rate cuts at an event. Bowman has consistently been one of the Fed’s more hawkish policymakers. Richmond Fed President Thomas Barkin said recent economic data highlighted how price pressures in some sectors are still too high, despite improvement in the overall inflation picture. Vice Chair Philip Jefferson said the Federal Reserve needs to be on guard against cutting interest rates too far in response to falling inflation lest it undermine the achievement of its ultimate goal of price stability. “We always need to keep in mind the danger of easing too much in response to improvements in the inflation picture,” he said, adding “excessive easing can lead to a stalling or reversal in progress in restoring price stability.” Jefferson, who as vice chair is a key messenger for Fed Chair Jerome Powell, voiced cautious optimism that inflation is headed lower despite an uptick in January and said the Fed is likely to begin cutting interest rates later this year. Lastly, Philly Fed President Patrick Harker said that it will likely be appropriate to cut interest rates this year but emphasized the risks of easing policy too soon. Lowering borrowing costs prematurely could unwind the progress made on inflation, Harker said, adding that he will be closely monitoring incoming data to verify the downward trend in price growth.

Q4 Earnings Season: Through Friday, 450 members of the S&P 500 have reported results with over 76% beating expectations. Aggregate earnings for the group are up 7.2%. When all is said and done, analysts are now forecasting that overall earnings will finish the quarter up 7.7%, well ahead of the 1.2% estimated pace in early-January. On the sector level, the strongest growth is coming from the Communication Services and Consumer Discretionary sectors while the Energy and Materials sectors have posted the weakest growth. According to Bloomberg data, the earnings environment is set to strengthen over the course of the year with 2024 S&P 500 earnings growth estimated at 9.5% followed by 13.9% growth during 2025.

The Week Ahead: The focal point of this week’s data calendar will be on Thursday’s core PCE report - the Fed's preferred inflation gauge. According to Bloomberg, economists expect core PCE to show +0.4% month-over-month growth in January. On a year-over-year basis core PCE is expected to advance by 2.8% (from 2.9% in December). Other notable data releases include durable goods orders, the Conference Board's consumer confidence index and the ISM manufacturing index on Friday. Earnings season will continue to wind down with 40 members of the S&P 500 scheduled to release results. Included in this group is Dow-component Salesforce, Inc. It will be another busy week for Fed speeches with the calendar showing 13 presentations on the docket.

— 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.