/perspectives/weekly-viewpoint/buyers-fatigue-sets-in

Buyer’s Fatigue Sets In

After closing solidly higher for three consecutive weeks, the major market indices finished the holiday shortened week mixed to little changed.

January 28, 2019    |    By Mike Schwager

Performance for Week Ending 1/25/2019:

The Dow Jones Industrial Average (Dow) added 0.12%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 0.21%, the Standard & Poor’s 500 Index (S&P 500) dipped 0.22% and the Nasdaq Composite Index (NASDAQ) tacked on 0.11%. Sector breadth was mixed with 7 of the 11 S&P sector groups finishing the week lower. The Real Estate sector (+1.50%) was the best performer while the Energy sector (-1.45%) was the worst.

Index* Closing Price 1/25/2019 Percentage Change for Week Ending 1/25/2019 Year-to-Date Percentage Change Through 1/25/2019
Dow 24737.20 +0.12% +6.04%
Wilshire 5000 27560.10 -0.21% +7.03%
S&P 500 2664.76 -0.22% +6.30%
NASDAQ 7164.86 +0.11% +7.98%

*See below for Index Definitions

 
MARKET OBSERVATIONS: 1/21/2019 – 1/25/2019

After closing solidly higher for three consecutive weeks, the major market indices finished the holiday shortened week mixed to little changed. Stocks have been on a tear since finding a bottom in late-December, with the S&P 500 gaining over 13% from the December 24th close through last Friday. Markets have become overbought on a near-term basis, and last week’s action should be viewed as a healthy development (a pause to refresh). Driving the recent performance has been the more ‘dovish’ tone out of the Federal Reserve, a solid start to the fourth quarter earnings season, and signs of progress in the US/China trade spat.

Fed Up: All eyes will be on this week’s two-day Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. While no changes in monetary policy are expected, investors will be looking for clues on the timing of the next move in rates. Recall that the Fed has pivoted to a more 'dovish' tone over the last couple months, with Fed Chairman Powell stating that there is no "preset" path higher and the Fed can be "patient" and "flexible." The softening tone in language suggests that a near-term pause in its rate hiking campaign is likely. The Summary of Economic Projections (SEP), released at the conclusion of the December FOMC meeting, indicated the possibility of two rate hikes over the course of this year. Guggenheim believes both hikes will occur during the second half of the year.

Q4 Earnings – So Far, So Good: Fourth quarter earnings season is off to a moderately better than expected start. Through Friday, 113 members of the S&P 500 have released results with just over 73% surprising to the upside. Aggregate earnings growth is running at just over 13%, mildly above the 12.35% expected growth when all is said and done. While growth has moderated from recent quarters, it remains positive and certainly better than feared.

Outlook: Despite the sharp draw down in the market late last year and the increase in market volatility, we still have a bullish tilt and continue to believe there is money to be made over the coming quarters. Our view is that as long as the economy and earnings continue to grow – which remains our base-case scenario—equity prices should ultimately follow suit. Valuations have contracted following last year’s drawdown, and with stabilizing rates and inflation, a moderate expansion in the market’s price to earnings multiple seems likely.

The Week Ahead: The Federal Open Market Committee (FOMC) will hold its first meeting of the year starting on Tuesday with the after-meeting statement scheduled to be released at 2:00pm ET on Wednesday. Fed Chair Powell will also host a press conference at 2:30pm Wednesday afternoon. The other notable event this week will be the Wednesday and Thursday meeting between US and China trade representatives discussing the trade situation between the two countries.

Fourth-quarter earnings season will shift into high gear this week with 120 S&P 500 index companies scheduled to report results. The focal point of the data calendar will be the monthly Payroll data for January on Friday morning. Other economic reports of interest include; the November Case-Shiller home price index, the Conference Board’s January consumer confidence survey, the January ADP employment report, December pending home sales index, and the January Institute for Supply Management (ISM) manufacturing index.

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 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.

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.


FEATURED PERSPECTIVES

January 24, 2019

Amber Lights Flash at Davos

Should the mood this year at Davos prove once again to be a contra-indicator, this may be the signal that the economy is likely to re-accelerate soon and that the party in risk assets continues.

January 18, 2019

Up the Escalator, Down the Elevator

An uptick in corporate defaults in 2019 will mark the beginning of a prolonged period of stress in the corporate bond market.

January 16, 2019

10 Macro Themes to Watch in 2019

Ten charts illustrate the macroeconomic trends most likely to shape Fed policy and investment performance in 2019 and beyond.


VIDEO

Forecating the Next Recession 

Forecating the Next Recession

Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”







Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.