Performance for Week Ending 4.29.2022:
The Dow Jones Industrial Average (Dow) finished down 2.47%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 3.41%, the Standard & Poor’s 500 Index (S&P 500) slumped 3.27% and the Nasdaq Composite Index (NASDAQ) closed off 3.93%. Sector breadth was negative with all 11 of the S&P sector groups closing lower. The Consumer Discretionary sector (-7.89%) paced the decliners followed by Real Estate (-5.66%) and Financials (-4.59%).
||Closing Price 4/29/2022
||Percentage Change for Week Ending 4/29/2022
||Year-to-Date Percentage Change Through 4/29/2022
*See below for Index Definitions
MARKET OBSERVATIONS: 4/25/22 – 4/29/22
The major market indices finished the week broadly lower on mixed earnings reports, global growth worries and caution ahead of the upcoming Federal Open Market Committee (FOMC) meeting, where the Fed is expected to boost rates for the second consecutive meeting. The recent market weakness has pushed the S&P 500 into correction territory (defined by a 10% pullback from a prior peak). In economic news first, quarter real gross domestic product (GDP) contracted at a 1.4% annualized pace in Q1, well short of the 1.1% expansion forecast by economists. While consumers and businesses increased spending last quarter, much of that demand growth was met by foreign production, as imports surged at a 17.7% pace. Overall, foreign trade subtracted 3.2%-points from GDP growth, and a slower-than-expected pace of inventory accumulation subtracted another 0.8%-point. Another source of disappointment was government spending, which declined at a 2.7% rate. Stripping out the above categories, private domestic demand—spending by households and businesses—increased at a 3.7% pace, the best output since 2Q21.
Q1 Earnings - A Mixed Bag So Far: With just over half the members of the S&P 500 reporting first quarter earnings, overall results have been mixed. Through Friday, 273 members of the S&P 500 have released results with 81% surprising to the upside. Aggregate earnings growth is up 3.2% on a year-over-year basis, moderately below the 8.7% that analysts are currently forecasting when all is said and done. On the sector level, nine of the eleven of the S&P sector groups have delivered positive growth with the strongest gains coming from cyclical sectors like Energy, Industrials and Materials. On the weak side, Consumer Discretionary and Financials have disappointed.
Tale of Two Halves? While the near-term outlook for the markets will remain clouded by the situation in Ukraine, elevated levels of inflation and concerns over the Federal Reserve’s response to inflation, we think as we move forward fundamentals will ultimately outweigh fears. The US economy remains in good shape and the probability of a recession in the coming quarters remains low. Consumer balance sheets are strong and savings rates are still elevated by over $2 Trillion. Money market mutual have over $4.5 trillion in cash and corporate buyback activity is expected to remain strong. Supply chain issues have also started to ease. Importantly, the earnings environment remains solid with high single digit growth expect this year and next. If there has been a silver lining to the recent market weakness, it’s been that valuation levels have moved lower with the S&P selling for just over 16x the 2023 estimate and 15x the 2024 estimates. While certainly not a cheap market, it is certainly much less expensive than we’ve seen in recent years.
The Week Ahead: The focal point during the coming week will be the two-day FOMC meeting on Tuesday and Wednesday. In what has been well telegraphed by Fed officials, the committee is expected to hike the fed funds rate by 50 basis points. Aside from the rate hike, investors will be also be looking for a start date and other details on the reduction of the Fed’s $9 trillion balance-sheet. The tone of the after meeting statement (hawkish/dovish?) will also be monitored very closely. On the data front, Friday’s report on April employment will be in the spotlight. According to Bloomberg, nonfarm payrolls are expected to expand by 390K and the unemployment rate is forecast to dip to 3.5% from 3.6% in March. The wage component of the report will also be in focus to help gauge inflationary pressures from the labor market. Other reports of interest include; the ISM Manufacturing data for April, March Factory Orders, the ISM Services data for April, and April auto sales. On the earnings front, 158 members of the S&P 500 are scheduled to release results during the week. Four Fed Heads are slated to speak on Friday, including NY Fed President Williams, Atlanta Fed President Bostic, St. Louis Fed President Bullard, and San Francisco Fed President Mary Daly.
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.
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