Stocks Take a Breather Ahead of a Busy Week of Earnings and Key Data Reports

Performance for Week Ending 10/25/2024:

The Dow Jones Industrial Average (Dow) fell 2.68%, the Standard & Poor’s 500 Index (S&P 500) lost 0.96% and the Nasdaq Composite Index (NASDAQ) finished up 0.16%. Sector breadth was negative with 9 of the 11 S&P sector groups closing lower. The Materials sector (-4.01%) was the weakest performer followed by Healthcare (-2.98%) and Industrials (-2.77%). Consumer Discretionary (+0.92%) and Technology (+0.18%) finished in the green.

*See below for Index Definitions

MARKET OBSERVATIONS: 10/21/2024  – 10/25/2024

The S&P 500 finished the week lower, breaking a six-week winning streak, as a backup in interest rates weighed on risk assets. During the week, benchmark 10-year Treasury yields reached a three-month high, reflecting the backdrop of stronger economic data and investor concerns over the inflationary impact of policies of each Presidential candidate. Despite the pullback, it was a relatively quiet week in front of what is likely to be an action-packed period. Over the next two weeks we will get a mountain of potentially market moving events including earnings reports from five of the Mag-7 mega cap tech stocks, the Fed’s favorite inflation barometer - the core PCE report (10/31), the monthly payroll data (11/1), the U.S. Presidential election (11/5) and the November FOMC meeting (11/6 &11/7).

Q3 Earnings Update: So far, it’s been a mixed bag as we approach the mid-point of third quarter earnings season. Through Friday, 183 members of the S&P 500 have released fiscal quarter results with just over 76% beating expectations. Aggregate earnings for this group are up 3.6%, slightly below the 4.3% projected growth rate for the overall quarter. On the sector level, the strongest growth is coming from the Technology sector (+42%) while the weakest has been the Energy sector (-39.8%). In terms of expected full year growth rates, the Bloomberg consensus is for 8.9% growth this year followed by 14.0% in 2025.

Fed Speak: Minneapolis Fed President Neel Kashkari said he expects modest rate cuts over the next few quarters, though added that evidence of a quicker slowdown in the labor market could lead to faster rate cuts. "Right now, I see modest cuts over the next quarters," Kashkari said, and addressed the possible inflationary impact of tariffs. "Tariffs shouldn't be themselves leading to ongoing inflation probably a one-time change in price level," he said. Meanwhile, Dallas Fed President Lorie Logan reiterated that she sees lowering interest rates "gradually," citing an increased risk of a worsening job market and return of inflationary conditions "If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals," Logan said, adding the economy is "strong and stable" but that "meaningful uncertainties" remain in the outlook. San Francisco Fed President Mary Daly also said she expected the risk of a weaker labor market would keep the Fed on its rate-cutting path Daly said, “So far, I haven’t seen any information that would suggest we wouldn’t continue to reduce the interest rate.” And added. “This is a very tight interest rate for an economy that already is on a path to 2% inflation, and I don’t want to see the labor market go further.”

Beige Book Report: Last week the Fed released its Beige Book update. The report, which includes anecdotes and commentary about economic conditions from businesses and other contacts in each of the Fed’s 12 districts, said economic activity was flat in most parts of the country since early September. More than half of the US central bank’s 12 districts reported “slight or modest” growth in employment, while most districts said prices rose at a “slight or modest pace.” Reports on consumer spending were mixed, with some districts noting shifts in the composition of purchases, mostly toward less expensive alternatives. The Beige Book also contained around 15 references to the November elections as a source of uncertainty or a factor that was causing consumers and firms to delay investing, hiring, and purchasing decisions.

Economic Roundup: On the housing front, sales of previously owned homes declined to an almost 14-year low in September as buyers waited for a further decline in mortgage rates and more attractive asking prices. Closings fell by 1% from a month earlier to a 3.84 million annualized rate. Inventory levels ticked higher with 1.39 million homes for sale in September, up 23% from a year earlier, but still below pre-pandemic levels. The median sales price rose 3% on a year-over-year basis to $404,500. Meanwhile, new-home sales during September jumped to the highest level in over a year as customers responded to more incentives from builders and a drop in mortgage rates. Sales of new single-family homes increased 4.1% to a 738K annualized rate. The median sales price was little changed from a year ago, at $426,300, but was still almost 30% higher than at the end of 2019. On the labor front, new applications for unemployment benefits declined for a second week, to levels seen before Hurricanes Helene and Milton hit Southeastern states. Initial claims decreased by 15K to 227K in the week ended Oct. 19. The four-week moving average of new applications, a metric that helps smooth out volatility, rose to 238.5K. Lastly, sentiment among US consumers increased in October to a six-month high as households grew more upbeat about buying conditions, partly because of cheaper financing costs. The final October sentiment index rose to 70.5 from 70.1 a month earlier, according to the University of Michigan. The university’s measure of buying conditions for durable goods picked up to a four-month high as more than half of consumers indicated they expect further interest-rate relief in the coming year. That suggests consumer spending will remain resilient and help underpin the economy.

The Week Ahead: It will be a jam-packed week for the data calendar, with the focal point coming on Friday when the October payroll data will be released. According to Bloomberg, economists expect nonfarm payrolls to expand by 108K and the unemployment rate to remain steady at 4.1%. Other economic reports of interest include consumer confidence, job openings, Q3 GDP, core PCE inflation, and the ISM Manufacturing Index. The earnings calendar will remain front and center with nearly 160 members of the S&P 500 scheduled to report results. All eyes will be on the mega-cap Technology space with earnings due out from Alphabet (Tuesday), Microsoft and Meta (Wednesday), Apple and Amazon (Thursday). The Fed speaking calendar will be a non-event as Fed officials will be subject to the pre-FOMC meeting blackout period.

— 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.