Buckle Up: The Election and the Fed Meeting on Tap This Week

Performance for Week Ending 11/1/2024:

The Dow Jones Industrial Average (Dow) fell 0.15%, the Standard & Poor’s 500 Index (S&P 500) lost 1.37% and the Nasdaq Composite Index (NASDAQ) finished down 1.50%. Sector breadth was negative with 9 of the 11 S&P sector groups closing lower. The Technology sector (-3.28%) was the weakest performer followed by Real Estate (-3.07%) and Utilities (-2.81%). On the flipside, Communication Services (+1.53%) and Consumer Discretionary (+0.48%) finished higher.

*See below for Index Definitions

MARKET OBSERVATIONS: 10/28/2024  – 11/1/2024

The S&P 500 finished lower for a second straight week reflecting mixed earnings reports, another leg higher in interest rates, and caution ahead of this week’s presidential election and Fed meeting. Markets looked past a disappointing report on the labor market as the data was heavily distorted by weather disruptions and worker strikes. On Friday, data from the Labor Department showed the economy added just 12K nonfarm payroll jobs in October, well short of the 100K additions expected by economists. The unemployment rate held steady at 4.1% (although on an unrounded basis it rose from 4.05% to 4.14%). The jobs report likely sealed the deal for a quarter point rate reduction at the conclusion of this Thursday’s Fed meeting, where the Fed is expected to lower their benchmark rate to a range of 4.50% - 4.75%.

Q3 Earnings Update: The bar was set relatively low at the start of earnings season and despite some high-profile misses, overall results have come in better than feared. Through Friday, 351 members of the S&P 500 have released fiscal quarter results with just over 75% beating expectations. Aggregate earnings for this group are up 8.7%, solidly ahead of the 4.3% projected growth rate for the quarter. On a sector level, the strongest growth is coming fro Consumer Discretionary (+21.7%) while the weakest has been Energy (-20.2%). Full year growth rate expectations according to the Bloomberg consensus are 8.9% this year followed by 14.0% in 2025.

Economic Roundup: The US economyic expanded at a solid pace in the third quarter, as household purchases acceleratedaccelerated, and the federal government ramped up defense spending. Inflation-adjusted gross domestic product increased at a 2.8% annualized pace after rising 3% in the previous quarter. Consumer spending advanced 3.7%, the most since early 2023, led by more spending on goods. Meanwhile, the Institute for Supply Management reported that the U.S. manufacturing sector contracted once again in October for the seventh consecutive month (and 23rd time in the last 24) with the Manufacturing PMI registering a reading of 46.5 (a reading below 50 signals contraction). On the inflation front, the Fed’s preferred barometer of inflation, the core PCE, increased by 0.3% during September, on target with consensus expectations of 0.3% but was 10 basis points higher from the prior month’s reading. On a 12-month basis core inflation increased by 2.7%, unchanged from the prior month but slightly ahead of the 2.6% pace forecasted by economists. US consumer confidence increased in October by the most since March 2021 on optimism about the broader economy and the labor market. The Conference Board’s gauge of confidence jumped 9.5 points to 108.7, the highest level since the start of the year.

The Week Ahead: The focal events this week will be the US elections on Tuesday followed by the two-day FOMC meeting on Wednesday and Thursday. In terms of the Presidential election, polls are showing the contest remains neck and neck between the two candidates. In addition to the Presidential election, there will also be the Congressional elections, with the race for control of both the Senate and the House up for grabs. In terms of the FOMC Meeting, the Fed is set to deliver its decision on rates on Thursday, with Bloomberg’s World Interest Rate Probability tool signaling near certainty of a 25-basis point reduction at the conclusion of the meeting. On the data front, highlights include the ISM services (Tuesday), productivity and unit labor costs (Thursday), and the University of Michigan's consumer survey (Friday). With just over 70% of the S&P 500 members having now reported, earnings season will begin to wind down. In the week ahead, 100 members of the S&P 500 are scheduled to report 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.