Stocks Rise for a Fourth Straight Week on Revised Odds of a Soft Landing

Performance for Week Ending 10/4/2024:

The Dow Jones Industrial Average (Dow) gained 0.09%, the Standard & Poor’s 500 Index (S&P 500) added 0.22% and the Nasdaq Composite Index (NASDAQ) finished up 0.10%. Sector breadth was mixed with 6 of the S&P sector groups closing higher and 5 closing lower. The Energy sector (+7.01%) was the best performer while the Materials sector (-1.98%) was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 9/30/2024  – 10/4/2024

The S&P 500 finished higher for a fourth straight week as a better-than-expected report on the labor market outweighed worries over escalating tensions in the Middle East and the resulting spike in oil prices. For the week oil prices gained 9.1% on fear the conflict between Israel and Iran could broaden out and disrupt global energy shipments. On Friday, the Labor Department reported that nonfarm payrolls increased by 254K, well ahead of the 150K increase expected by economists. The prior two months were also upwardly revised by 72K. The September gain along with the revisions pushed the three-month average of payroll gains up to 186K, the strongest since May. The unemployment rate fell to 4.1%, down from 4.2% in August and 4.3% in July. The strong jobs report reinforced hopes that the Fed will be able to engineer a soft landing and avoid a recession. Following the report Traders priced out the probability of another 50-basis point reduction at the November FOMC meeting. Bloomberg’s World Interest Rate Probability tool now shows 25 basis point rate reductions at both the November and December meetings.

Fed Speak: Speaking at the National Association for Business Economics conference in Nashville, Fed Chair Jay Powell said the slowdown in inflation will allow the Federal Reserve to cut its benchmark interest rate and "over time" reach a level that is no longer holding back activity. In response to a question after his formal remarks, Powell said in terms of the outlook for rate cuts, "this is not a Committee that feels like it's in a hurry to cut rates quickly." The phrase seemed to be Powell telegraphing that the Fed may be leaning toward a 25-basis point cut versus a more aggressive 50bps reduction. Atlanta Fed President Raphael Bostic said he’s open to another half-percentage-point interest rate cut at the Fed’s November meeting if the upcoming data show job growth slowing faster than expected. Bostic said his baseline outlook was for an “orderly” Fed easing over the next 15 months that would end with the central bank’s policy rate in the 3.00%-3.25% range at the end of 2025. Chicago Fed President Austan Goolsbee reiterated interest rates need to come down over the next year by “a lot.” Goolsbee emphasized how the central bank’s narrow focus on inflation has expanded to the jobs market, adding he’d like to keep the unemployment rate from rising any further. Richmond Fed President Tom Barkin noted progress on inflation and signs that pricing power is being wrung out of the economy, though he said it is too early for the central bank to declare victory.

Economic Roundup: US service providers expanded in September at the fastest pace since February 2023, driven by a flurry of orders and stronger business activity. The ISM’s index of services advanced 3.4 points to 54.9 last month. The group’s forward looking new orders gauge jumped 6.4 points, the most since the start of 2023. Combined with a four-month high in a measure of business activity, the data suggest the economy was on solid footing at the end of the third quarter. Meanwhile, manufacturing activity shrank in September for a sixth straight month, with the ISM’s manufacturing index holding steady at 47.2 (reading below 50 signal contraction). On the labor front, hiring at US companies picked up in September, snapping a five-month stretch of slower payrolls growth. According to the ADP Research Institute, private payrolls increased 143K last month after an August advance that was the weakest since March 2023. However, even with the September uptick, the three-month average eased to 119K, one of the lowest levels since 2020. Lastly, applications for US unemployment benefits rose slightly to a level that is consistent with limited number of layoffs. Initial claims increased by 6K to 225K in the week ended Sept. 28. The four-week moving average of new applications, a metric that helps smooth out volatility, fell to 224,250, the lowest since June 1.

The Week Ahead: The focal point of the data calendar will be the September consumer price index (CPI) report on Thursday. According to Bloomberg, economists see month-over-month growth slowing, with the headline gauge coming in at +0.1% vs +0.2% in August and the core at +0.2% down from +0.3%. Other reports of interest include initial jobless claims, the producer price index (PPI), and the University of Michigan Sentiment survey. On the Fed front, the minutes from the September FOMC meeting will be released on Wednesday with investors hoping to get more details behind the Fed's decision to cut rates by 50 basis points last month. It will be a very busy week for Fed officials with over 20 appearances on the calendar. Earnings reports will remain on the backburners for one more week with just 8 members of the S&P 500 scheduled to report fiscal quarter results. Amongst this group will be banking giants Wells Fargo and JP Morgan.

— 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.