Performance for Week Ending 10/27/2017:
The Dow Jones Industrial Average (Dow) rose 0.45%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) finished up 0.18%, the Standard & Poor’s 500 Index (S&P 500) gained 0.23% and the Nasdaq Composite Index (NASDAQ) tacked on 1.09%. Sector performance was mixed with 6 of the S&P groups finishing lower and 5 closing higher. The Technology sector (+2.87%) was the best performer while Telecom (-3.16%) was the worst.
||Closing Price 10/27/2017
||Percentage Change for Week Ending 10/27/2017
||Year-to-Date Percentage Change Through 10/27/2017
*See below for Index Definitions
MARKET OBSERVATIONS: 10/23/2017 – 10/27/2017
The major market indices finished the week modestly higher. The S&P 500 and Dow closed higher for the ninth time in the past 10 weeks while the Nasdaq Composite posted its fifth straight weekly advance. Driving the gains over the past couple of weeks has been the better than expected third quarter earnings season, stable economic growth and progress toward corporate tax reform.
While the unrelenting march higher in stocks is raising worries that the market has moved “too far, too fast,” the upside has been supported by the very favorable macro environment. While a near-term “pause to refresh” may be needed, any pullback would be viewed as healthy and ultimately a good buying opportunity – especially for investors with an intermediate to longer-term time horizon.
Fundamentals Remain Supportive: The US economy is in good shape. After posting GDP growth of 3.1% during the second quarter, growth in the latter half of the year should benefit from the massive rebuilding efforts in the South following the hurricanes. On Friday, the preliminary estimate of Q3 GDP came in at a better than expected 3.0% pace, solidly above economist expectations. The strong Q3 results, especially in light of the disruption from the hurricanes, may suggest that risk to forward growth could be skewed to the upside.
The earnings environment remains robust, reflecting the firming US economy, synchronized global growth and stabilization in the US dollar. The first and second quarters of this year were the best back to back quarters in over five years. So far, third quarter earnings season is off to a solid start with the vast majority of companies surprising to the upside. According to consensus expectations, growth momentum should continue through at least year-end
Monetary policy. The Federal Reserve has embarked on efforts to tighten monetary policy, however, the path higher is expected to be very gradual and interest rates are expected to remain supportive of risk assets. Guggenheim expects the Federal Reserve to hike rates at the December FOMC meeting and up to 4 times during 2018. Higher rates should be viewed as a confirmation that economy no longer needs to be on life-support. In addition, from an equity market point of view higher rates are generally positive for the Financials sector which currently carries just under a 15% weighting in the S&P 500.
Fiscal Stimulus. At some point in the foreseeable future we are likely to get the added benefits of fiscal stimulus. Tax reform is beginning to move forward and while there remains many unanswered questions and some high profile infighting, in general, Republicans appear united on reducing tax rates. While the likelihood of getting something done by year-end seems low, a plan in place by the end of Q1 2018 seems reasonable and likely.
Market View – Stay the Course: We continue to believe the bull market remains intact and the “Goldilocks” economic environment (not too hot, not too cold) should help limit downside risk in the event of a correction. From a macro point of view, the world is enjoying a period of synchronized global growth, which has resulted in a favorable turn in the earnings environment. In addition, valuation levels—while elevated—are far from extreme. If the market were to stage a pullback in the coming months, it would be viewed as an opportunity to add equity exposure to portfolios.
The Week Ahead: The focal point of the upcoming week will be the two-day Federal Open Market Committee (FOMC) meeting that begins on Tuesday. While no change in interest rate policy is expected, investors will look to the after meeting communique for confirmation of a move at the December meeting. According to the Bloomberg World Interest Rate Probability (WIRP) function, investors see the probability of a December hike at 87%. Earnings season will remain in full stride with 133 members of the S&P 500 member to report. Included in this group is Dow component and tech-bellwether Apple Inc. on Thursday. It will also be a busy week on the data front. Economic reports of interest include; September personal income and spending, the August S&P Case-Shiller home price index, the October Chicago purchasing managers’ index (PMI), the Conference Board’s October consumer confidence survey, October motor vehicle sales, the October ADP Employment Report, and the Institute for Supply Management’s (ISM) October manufacturing index. On Friday the closely watch monthly payroll data will be released. After plunging by 33K in September due to hurricanes Harvey and Irma, nonfarm payrolls are forecast to surge by 310K, according the Bloomberg consensus forecast.
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 IndexSM 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.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.
The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
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*Assets under management is as of 09.30.2018 and includes leverage of $11.8bn.
Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.
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