Higher for Longer Fears Weigh on the Market

Performance for Week Ending 9.8.2023:

The Dow Jones Industrial Average (Dow) finished down 0.75%, the Standard & Poor’s 500 Index (S&P 500) lost 1.29% and the Nasdaq Composite Index (NASDAQ) fell 1.93%. Sector breadth was negative with 9 of the S&P sector groups closing lower. The Industrial (-2.92%) sector led the way lower followed by Materials (-2.45%) and Technology (-2.34%).

*See below for Index Definitions

MARKET OBSERVATIONS: 9/4/23  – 9/8/23

The major market indices finished the holiday-shortened week lower after a batch of stronger-than-expected economic data fueled concerns of sticky inflation and worries that interest rates may need to stay higher for longer. The Nasdaq Composite led the decline as technology stocks fell in sympathy with Apple, on news that China has banned government employees from using the company’s flagship iPhone. The move comes amid a longer-term effort by Beijing to reduce its reliance on foreign technologies and maintain a tighter grip on security and data protection. The news raised worries of what other companies may be subject to such restrictions in the world’s second largest economy. Seasonals influences may have also been at work as the month of September tends to be the weakest of the year. According to Bloomberg data, over the past 25 years September has produced an average loss of 1.26%, more than double August – the second worst month of the year. The good news is that weakness in September often sets the stage for the October through December period with the S&P delivering an average quarterly gain of 5.09% over the 25-year period.

In economic news, service sector activity rose to a six-month high in August, bolstered by a pickup in new orders and hiring. The Institute for Supply Management's services index increased almost 2 points to 54.5 (note- readings above 50 indicate expansion) and the figure topped consensus expectations. Meanwhile, applications for unemployment benefits fell to the lowest level since February, underscoring a reluctance to let go of workers. Initial unemployment claims decreased by 13K to 216K, according to Labor Department data. Continuing claims, which are a proxy for the number of people receiving unemployment benefits, dropped to 1.68 million, the lowest level since July. Elsewhere, mortgage rates decreased for a second week in a row. The average for a 30-year, fixed rate loan fell to 7.12% from 7.18% a week earlier, according to Freddie Mac. Mortgage rates have now been above 7% for the past four weeks and have more than doubled since the start of 2022. The surge in borrowing costs has been a headwind to home sales and has sidelined many buyers due to affordability issues.

On the Fed front, Governor Christopher Waller said policymakers can afford to “proceed carefully” with tightening given recent data showing inflation continuing to ease. “There is nothing that is saying we need to do anything imminent anytime soon,” Waller told CNBC. Cleveland Fed President Loretta Mester said the central bank may need to raise rates “a bit higher,” but stopped short of saying what officials should do at their next meeting. In a moderated discussion with Bloomberg, NY Fed President John Williams said US monetary policy is “in a good place,” but officials will need to parse through data to decide on how to proceed on interest rates. “I think we’ve gotten monetary policy in a very good place in terms of we have a restrictive stance of policy,” Williams said.

The Week Ahead: The focal point of this week’s economic calendar will be the release of the August consumer price index (CPI) data on Wednesday. According to Bloomberg, the headline CPI is expected to advance 3.6% on a year-over year basis, up from 3.2% in July. The core CPI—which include food and energy—is forecast to gain 4.3% y/y down from 4.7% during the prior month. Other price pressure indicators due include the producer price index on Thursday and consumer inflation expectations from the University of Michigan survey on Friday. Other data reports of interest include retail sales on Thursday and industrial production on Friday. There are no Fed speeches scheduled as central bankers will be subject to the blackout rules ahead of the September 19 & 20 Federal Open Market Committee meeting. It will be a quiet week on the earnings front with just four members of the S&P 500 scheduled to release 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.