/perspectives/weekly-viewpoint/july-off-to-a-strong-start

July Off to a Strong Start

The major market indices finished the holiday shortened week higher on growing expectations the Federal Reserve will ease its aggressive pace of interest rate hikes later this year amid growing concerns of a recession.

July 11, 2022    |    By Michael Schwager

Performance for Week Ending 7.8.2022:

The Dow Jones Industrial Average (Dow) finished up 5.39%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SSM) added 6.58%, the Standard & Poor’s 500 Index (S&P 500) gained 6.45% and the Nasdaq Composite Index (NASDAQ) tacked on 7.49%. Sector breadth was mixed with5 of the S&P sector groups closing higher and 6 closing lower. The Communication Services (+4.92%) was the best performer while Utilities (-2.87%) was the worst.

Index* Closing Price 7/8/2022 Percentage Change for Week Ending 7/8/2022 Year-to-Date Percentage Change Through 7/8/2022
Dow 31338.15 +0.77% -13.76%
Wilshire 5000 38870.79 +2.34% -19.82%
S&P 500 3899.38 +1.94% -18.19%
NASDAQ 11635.31 +4.56% -25.63%

*See below for Index Definitions

MARKET OBSERVATIONS: 7/4/22 – 7/8/22

The major market indices finished the holiday shortened week higher on growing expectations the Federal Reserve (the “Fed”) will ease its aggressive pace of interest rate hikes later this year amid growing concerns of a recession. During the week Fed Governor Christopher Waller said he supports raising interest rates by 75 basis points this month for a second straight meeting and “probably” a 50 basis-point hike at the following gathering in September. Waller also dismissed concerns that the US economy is starting to slump, a sentiment echoed by St. Louis Fed President James Bullard, who said the US economy has a “good chance” of sticking a soft landing. Worries that a recession could lead to a slowdown in energy demand continued to weigh on oil prices with West Texas Intermediate crude down by over 15 percent from the high of $123.70 reached on March 8.

Jobs Report: Near term recession concerns were dampened following the release of the June payroll data. The Labor Department reported that US employers added more jobs in June than forecast with the unemployment rate near a five-decade low, suggesting hiring needs are so far eclipsing concerns about the economic outlook. Nonfarm payrolls rose 372K last month following a revised 384K in May and the unemployment rate held steady at 3.6%. Wage inflation appears to be showing a gradual slowdown, with average hourly earnings up 0.3% month-over-month, pushing the annual growth rate down to 5.1%, the third consecutive monthly decline. That said, the current pace is still a lot stronger than the Fed would like and, with the real economy seemingly holding up, officials are likely to press ahead with another rate hike at the July FOMC meeting.

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 into the second half of the year things will begin to stabilize. The US economy remains in relatively good shape and the probability of a recession in the coming quarters, while increasing, still remains low. Consumer balance sheets are strong with debt-to-income levels near record lows. Money market funds 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 15x the 2023 estimates and 14x the 2024 estimates. While still not a cheap market, valuation is well off levels seen in recent years.

The Week Ahead: Inflation will be front and center for markets next week. The June Consumer Price Index (CPI) data will be reported on Wednesday, followed by the Producer Price Index (PPI) release (Thursday) and the University of Michigan survey for July on Friday with investors expected to be laser focused on inflation expectations component. Economic growth will remain on the radar as well, with retail sales and industrial production indicators also scheduled for release. Second quarter earnings season will also kick-off this week with a handful of mega-cap banks leading the way. Results are due out from JPMorgan and Morgan Stanley on Thursday, Citigroup and Wells Fargo on Friday. On the Fed front, four Fed heads are scheduled to speak during the week. In addition, the Fed's Beige Book, scheduled for release on Wednesday, is expected to shed some light on the current economic landscape.

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.




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