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.
||Closing Price 1/25/2019
||Percentage Change for Week Ending 1/25/2019
||Year-to-Date Percentage Change Through 1/25/2019
*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.
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.
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 3.31.2019 and includes leverage of $11.3bn. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.
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