S&P Rallies Above the 5000 Milestone

Performance for Week Ending 2.9.2024:

The Dow Jones Industrial Average (Dow) edged 0.04% higher, the Standard & Poor’s 500 Index (S&P 500) gained 1.37% and the Nasdaq Composite Index (NASDAQ) added 2.31%. Sector breadth was positive with 8 of the 11 S&P sector groups closing higher. The Technology (+3.21%) sector led the way higher followed by Consumer Discretionary (+1.45%) and Health Care (+1.43%).

*See below for Index Definitions

MARKET OBSERVATIONS: 2/5/2024  – 2/9/2024

Economic Roundup: As is common the week after the release of the payroll data, the economic calendar was on the light side last week. The US service sector expanded in January by the most in four months after coming close to stagnating at the end of 2023, helped by a pickup in orders and employment. The ISM’s overall gauge of services increased 2.9 points, the biggest gain in a year, to 53.4 last month (reading above 50 signal expansion). A gauge of new orders placed with service providers — a proxy of future demand — rose to a three-month high of 55. Initial claims for unemployment benefits fell for the first time in three weeks, suggesting employers are still largely holding on to their workers. Initial claims decreased by 9K to 218K in the week ended Feb. 3. The four-week moving average, which helps smooth week-to-week volatility, increased to 212.3K, the highest since late December but still very low on a relative basis. Meanwhile, an index of sentiment among CEOs of US companies has turned positive for the first time in two years, according to the Conference Board. The group’s Measure of CEO Confidence rose to 53 in the first quarter, up from 46 in the final three months of 2023. Readings above 50 indicate more optimistic than pessimistic responses.

Fed Officials Singing the Same Tune: In a recent interview on CBS’s ’60 Minutes’ Fed Chair Jerome Powell said Americans may have to wait beyond March for the central bank to cut interest rates as officials look for more economic data to confirm that inflation is headed down to 2%. Last week, several Fed officials echoed Powell’s statement. Minneapolis Fed President Neel Kashkari said policymakers have time to gauge incoming data before lowering interest rates, pointing to shifts in the post-pandemic economy. Cleveland Fed President Loretta Mester suggested she’s not in a rush to begin cutting interest rates, saying policymakers will probably gain confidence to cut rates “later this year” if the economy evolves as expected. Meantime, she said Fed officials want to see more evidence that inflation is cooling toward their 2% target and cautioned against lowering borrowing costs too soon. Richmond Fed President Thomas Barkin reiterated policymakers have time to be patient about the timing of rate cuts, pointing to a strong labor market and continued disinflation. “No one wants inflation to reemerge,” Barkin said in prepared remarks at an event. “And given robust demand and a historically strong labor market, we have time to build that confidence before we begin the process of toggling rates down.” Fed Governor Adriana Kugler presented an optimistic case for a continued slowdown in US inflation while indicating there is little urgency to reduce the Fed’s benchmark lending rate soon. On Friday, Dallas Fed President Lorie Logan said she sees no urgency to cut interest rates right now, adding that policymakers have time to assess incoming economic data.

Q4 Earnings Season: Through Friday, 334 members of the S&P 500 have reported results with over 79% beating expectations. Aggregate earnings for the group are up 5.1%. When all is said and done, analysts are now forecasting that overall earnings will grow by 5.4% (up from 1.2% in early-January). On the sector level, the strongest growth is coming from the Consumer Discretionary and Communication Services sectors while the Energy and Healthcare sectors have posted the sharpest declines in 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 10.2% followed by 13.3% growth during 2025.

The Week Ahead: The focal point of this week’s data calendar will be the January Consumer Price Index (CPI) report on Tuesday as investors seek to assess when the Fed will start cutting rates. According to Bloomberg, headline CPI is forecast to gain 2.9% on a year-over-year (y/y) basis, down from 3.4% y/y during December. The core rate—which excludes food and energy—is expected to gain 3.7% y/y, down from 3.9% y/y in December. Another area of focus will be the strength of the US consumer, with key releases including retail sales on Thursday and the University of Michigan consumer survey on Friday. Other reports of note include industrial production, housing starts, and the Empire manufacturing survey. Earnings season will begin to wind down with 63 members of the S&P 500 scheduled to release results. Included in this group are 2 members of the Dow Jones Industrial Average. It will be another busy week for Fed speeches with the calendar showing 9 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.