Markets Continue to Search for a Bottom

Performance for Week Ending 9.30.2022:

The Dow Jones Industrial Average (Dow) finished off 2.92%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000^SM) lost 2.58%, the Standard & Poor’s 500 Index (S&P 500) fell 2.91% and the Nasdaq Composite Index (NASDAQ) shed 2.69%. Sector breadth was negative with wo of the 11 S&P sector groups closing lower. The Utilities sector (-8.81%) was the worst performer followed by Technology (-4.19%) and Consumer Staples (-3.96%). The Energy sector bucked the trend, gaining 1.83%.

*See below for Index Definitions

MARKET OBSERVATIONS: 9/26/22  – 9/30/22

Stocks indices finished the week lower and capped off the third straight quarter of market losses, with the S&P 500 losing 5.28% during the July through September period. After peaking in early January, the market has been in a downtrend reflecting the Fed’s effort to squash inflation by tightening monetary policy. On a year-to-date basis the US stock market has lost $14.6 trillion in market capitalization. Despite the Fed’s collective interest rate hikes of 300 basis points (bps) since the March FOMC meeting, inflation remains sticky and well above the Fed’s target of 2 percent. On Friday, the Fed’s preferred measure of inflation—the core PCE deflator—showed inflation running at a 4.9% pace on a year-over-year basis during August, up from 4.7% in July. In addition, the Labor Department reported that initial jobless claims fell 16k to 193k in the week ended September 24, much lower than expectations for claims of 215k. Claims for the prior week were revised down by 4k to 209k. The latest week's data pushed the four-week moving average for initial claims down 9k to 207k, the lowest level since late May. At the September FOMC meeting, the Fed’s so-called “dot plot” implied that the central bank will push the funds rate up another 125bps, which suggests the possibility of another 75bps rate hike in November followed by a 50bps rate hike in December. Last week’s solid labor market data and elevated levels of inflation will likely keep the Fed on track to follow through with more rate hikes. Bloomberg’s World Interest Rate Probability tool is showing bets on a 75 basis point rate hike in November sits at 73%, while a follow on 50bps in December sits at 89%.

Fed Speakers Cautiously Hawkish? While the Fed speaking calendar was jam packed last week and nearly every speaker reiterated the Fed’s mission to tamp down inflation by continuing to tighten policy, there was also some subtle hints of growing cautiousness. Fed Vice Chair Lael Brainard acknowledged the need to monitor the impact rising borrowing costs could have on global-market stability. Richmond Fed President Tom Barkin said key pressures stoking price growth are showing some signs of easing, while San Francisco Fed President Mary Daly said incoming data will determine how much the Fed will raise interest rates by. Daly added that she is looking at whether financial conditions have tightened more than should be expected, saying "if that's the case, then slowing the pace of increases but still heading for the right terminal rate would be appropriate." Minneapolis Fed President Neel Kashkari said the bank was “committed to restoring price stability” but acknowledged that given the lag time that monetary policy takes to work its way through the economy “there is a risk of overdoing it.” At the press conference following the recent FOMC meeting, Fed Chairman Powell said future rate decisions will be “data dependent” and decisions will be made on a “meeting to meeting” basis.

The Week Ahead: The focal point in the week ahead will be the September payroll data on Friday. According to Bloomberg nonfarm payrolls are forecast to expand by 250K while the unemployment rate is expected to hold steady at 3.7%. Other data reports on interest include; the September ISM Manufacturing report, August Factory Orders, and the September ISM Services Index. Earnings reports will continue to slowly creep back into the picture with 7 members of the S&P 500 scheduled to release results during the week. It will be another busy week of Fed Speak with upwards of 13 presentations scheduled. Another event of interest will be the OPEC+ decision on output when the cartel meets on Wednesday.

— 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.