S&P 500 Extends Winning Streak With Cyclical Sectors Leading the Charge

Performance for Week Ending 9/27/2024:

The Dow Jones Industrial Average (Dow) gained 0.59%, the Standard & Poor’s 500 Index (S&P 500) added 0.62% and the Nasdaq Composite Index (Nasdaq) finished up 0.95%. Sector breadth was positive with 7 of the 11 S&P sector groups closing higher. The Materials sector (+3.38%) paced the gains followed by Consumer Discretionary (+1.75%) and Industrials (+1.56%).

*See below for Index Definitions

MARKET OBSERVATIONS: 9/23/2024  – 9/27/2024

The S&P 500 finished the week higher and has now posted gains in six of the last seven weeks. Driving the gains was data showing the US economy remains on firm footing, dovish signals on rate cuts from a host of Fed officials and the extraordinary fiscal and monetary stimulus program announced by Chinese officials to help jumpstart the world’s second largest economy. Sectors leading the gains last week were Materials, Consumer Discretionary, and Industrials—all of which tend to do better in an expanding economy.

Fed Signaling: While the forward path for interest rates could prove bumpy depending on the incoming data, what has become increasing clear is that the direction of travel will be lower. Chicago Fed President Austan Goolsbee said interest rates need to be lowered “significantly” to protect the US labor market and support the US economy. “As we’ve gained confidence that we are on the path back to 2%, it’s appropriate to increase our focus on the other side of the Fed’s mandate — to think about risks to employment” adding “that likely means many more rate cuts over the next year.” Fed Governor Adriana Kugler said she “strongly supported” the central bank’s decision to lower borrowing costs by a half point last week, adding it will be appropriate to make additional rate cuts if inflation continues to ease as expected. Meanwhile, Fed Governor Michelle Bowman—the lone dissenter at the recent FOMC meeting—said the central bank should lower interest rates at a “measured” pace, arguing that inflationary risks remain and that the labor market has not shown significant weakening. At the FOMC meeting, Bowman favored a smaller 25 basis point cut.

Economic Roundup: US consumer confidence unexpectedly fell in September by the most in three years on concerns about the labor market and the outlook for the broader economy. The Conference Board’s gauge of sentiment decreased 6.9 points to 98.7, the biggest drop since August 2021. On the inflation front, core PCE—the Fed’s preferred barometer of inflation—rose 0.1% and was below consensus expectations of 0.2%. On a 12-month basis core inflation increased by 2.7%, in line with forecasts but slightly higher that the reading of 2.6% from last month. On a three-month annualized basis, core inflation was up 2.1%. Meanwhile, sales of new homes pulled back in August after a sharp increase in the prior month, as buyers remained patient amid steadily declining mortgage rates. New single-family home sales decreased 4.7% last month to an annualized rate of 716K after rising at the fastest pace since early 2022. The median sales price, meantime, decreased 4.6% from a year earlier to $420,600. That marked the seventh straight month of annual price declines, extending what was already the longest streak since 2009. It mainly reflected fewer sales of homes priced above $500,000. On the labor front, applications for US unemployment benefits fell to a four-month low, suggesting layoffs remain muted despite a recent slowdown in hiring. Initial claims decreased by 4K to 218K in the week ended Sept. 21. The four-week moving average, which helps smooth week to week volatility, fell to 224.8K, the lowest since June. In manufacturing news, the Commerce Department indicated that new orders for U.S. durable goods were unchanged in August, following a 9.9% surge in July. Economists had anticipated a 2.6% decline. Excluding transportation equipment, durable goods orders rose 0.5% in August after a slight decrease in July, surpassing expectations of a 0.1% increase.

The Week Ahead: The focal point of this week’s data calendar will come on Friday when the jobs report for September will be released. According to Bloomberg, nonfarm payrolls are forecast to expand by +130k, down slightly from +142k in August. The unemployment rate is expected to remain steady at 4.2% and hourly earnings growth is seen edging lower to +0.3% from +0.4% in August. Other labor market reports during the week include the JOLTS and ADP reports on Tuesday and Wednesday, respectively. Apart from the labor market releases, an update on economic growth will come from the ISM indices due on Tuesday (manufacturing) and Thursday (services). In addition to monitoring the headline ISM numbers, investors are also expected to keep an eye on the employment and prices components in both releases. It will be another quiet week on the earnings front with just 7 members of the S&P 500 scheduled to report fiscal quarter results. Amongst this group will be Dow-component Nike on Tuesday afternoon. It will be a busy week for Fed officials with at least 10 appearances on the calendar including remarks from Fed Chair Powell on Monday. Powell will give a speech in Nashville at the National Association for Business Economics conference.

— 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.