Stocks Rally Ahead of Fed Meeting

Performance for Week Ending 9/13/2024:

The Dow Jones Industrial Average (Dow) gained 2.60%, the Standard & Poor’s 500 Index (S&P 500) added 4.02%, and the Nasdaq Composite Index (Nasdaq) finished up 5.95%. Sector breadth was positive, with 10 of the 11 S&P sector groups closing higher. The technology sector (+7.33%) led, followed by consumer discretionary (+6.14%), and communication services (+4.27%).

*See below for Index Definitions

MARKET OBSERVATIONS: 9/9/2024  – 9/13/2024

The S&P 500 finished the week solidly higher, has now gained in four of the last five weeks, and sits just shy of its all-time high reached in mid-July. The 4% advance was the best weekly gain since last November. Driving the gains was investor optimism regarding the interest rate path in light of last week's inflation data. While the debate between a 25 or 50 basis point (bp) reduction continues, interest rates are still anticipated to be significantly lower by the end of the year. During the first half of the week, traders sharply reduced the odds of a 50bp move after both the core Consumer Price Index (CPI) and Producer Price Index (PPI) inflation data showed a modest uptick during August. However, the odds for 50bp rate cut rebounded from a low of 28% on Wednesday to a 49% probability on Friday following comments from former New York Federal Reserve (Fed) President William Dudley, who said “I think there's a strong case for 50.” Also on Friday, in a front-page article in the Wall Street Journal, reporter and so-called “Fed Whisperer” Nick Timiraos said the decision between cutting 25bp or 50bp remains a close call. Timiraos is watched closely as it is believed he has an inside track to Fed officials, who use him to telegraph Fed thinking. If we think about this differently, while Timiraos didn’t explicitly say that 50bp will happen, it does appear he is not being guided by the Fed that 25bp is a done deal either. Regardless of the size of the rate cut, the start of a cutting cycle in non-recessionary periods has shown to be favorable for the equity markets over the intermediate term.

Economic Roundup: Inflation reports were front and center last week with both core CPI and PPI showing a slight uptick during August. The Labor Department reported that headline CPI rose by 0.2% on a monthly basis in August, matching July's rate while the year-over-year pace slowed to 2.5% from 2.9% in July. Core consumer prices, which strip out more volatile items like food and fuel, edged up by 0.3% month over month, the fastest in four months and ahead of the forecast for a 0.2% gain. Year over year, the core reading came in at 3.2%, in line with forecasts and equaling July's pace. Meanwhile, prices at the producer level also picked up slightly in August after the previous month’s numbers were revised lower. The PPI for final demand increased 0.2% from a month earlier after a downward revision to July’s reading. Compared with a year ago, the PPI rose 1.7%—the least since early in 2024. Stripping out food and energy, the core rate rose 0.3%, higher than the 0.2% forecast and up from the 0.2% decline in July. On the labor front, applications for unemployment benefits ticked up for first the time in three weeks, consistent with a gradual slowdown in hiring. Initial claims increased by 2,000 to 230,000 in the week ended Sept. 7. The four-week moving average, a metric that helps smooth out week-to-week volatility, rose to 230,750, the first increase in five weeks. Meanwhile, the Fed reported that household wealth reached a new high in the second quarter, fueled by a steady rise in the value of real estate and Americans’ stock holdings. Household net worth increased $2.76 trillion, or 1.7% from the prior quarter, to $163.8 trillion. The report also showed that consumers and businesses increased their borrowing at a slower pace during the second quarter.

The Week Ahead: The focal point for the coming week will be the two-day Federal Open Market Committee meeting beginning Tuesday morning. The Fed will make its decision on rates on Wednesday at 2:00pm ET, followed by a press conference from Fed Chair Jerome Powell 30 minutes later. On the data front, highlights include the retail sales and industrial production releases for August on Tuesday. Other notable reports include housing starts and building permits on Wednesday and existing home sales on Thursday. It will be a quiet week on the earnings front, with just five members of the S&P 500 scheduled to report fiscal quarter results.

— 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.