Performance for Week Ending 8/25/2017:
The Dow Jones Industrial Average (Dow) added 0.64%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) finished up 0.90%, the Standard & Poor’s 500 Index (S&P 500) gained 0.72% and the Nasdaq Composite Index (NASDAQ) tacked on 0.79%. Sector performance was positive with 10 of the 11 S&P sector groups finishing higher. The Real Estate sector (+2.26%) was the best performer while Consumer Staples (-0.97%) was the worst.
||Closing Price 8/25/2017
||Percentage Change for Week Ending 8/25/2017
||Year-to-Date Percentage Change Through 8/25/2017
*See below for Index Definitions
MARKET OBSERVATIONS: 8/21/2017 – 8/25/2017
The major market indices finished the week higher with the S&P 500 posting its best weekly gain since mid-July. Despite a recent uptick in volatility, the domestic markets has been very resilient with the S&P 500 off just a little over 1% from its all-time high reached earlier this month. Investors appear to be looking past the recent geopolitical tensions with North Korea and the ongoing political saga in Washington and instead focusing on the improving growth environment. This seems to underscore that at the end of the day it’s fundamentals that ultimately drive equity markets not political headlines.
Synchronized Global Expansion. The rebound in economic growth is not limited to the United States. According to a report in the Wall Street Journal, for the first time in a decade, the world’s major economies are all growing in sync, with all 45 countries tracked by the Organization for Economic Cooperation and Development (OECD) set to grow this year. Recently, the International Monetary Fund projected global economic output would grow 3.5% this year and 3.6% in 2018, up from 3.2% growth in 2016.
The uptick in global growth is being recognized by base metals such as Copper, which has gained over 22% since the trough reached in early May. Copper is jokingly said to have a PhD in economics as it has been generally consistent in calling broader based trends in the global economy. Copper is one of the most widely used industrial metals with exposure to sectors as diverse as automobiles, housing, and electronics.
Jackson Hole – Yawn. The most anticipated event last week was the annual gathering of global central bankers in Jackson Hole, WY. The symposium, which is sponsored by the Kansas City Federal Reserve, is watched very closely as the meeting has been used in the past to communicate policy initiatives. The overriding topic of the meeting was "Fostering a Dynamic Global Economy" and the highlight was speeches given by both Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi on Friday. As expected, neither Yellen nor Draghi broke any new ground on monetary policy. Yellen spoke on financial stability and offered little thought on monetary policy or her views on inflation and growth. Draghi also refrained from making any comments on policy but did opine that the global recovery is firming.
While the Fed’s so called “dot plot” projects one more rate hike this year, investors are becoming less convinced. The Federal Reserve operates under a dual mandate of price stability and full employment. With the unemployment rate at 4.3%, the full employment mandate has been satisfied. Inflation (price stability), however, continues to fall short of the Fed’s 2% target. Last week, Amazon announced that it will begin slashing prices at its newly acquired Whole Foods division. This action will likely snowball it’s through the entire grocery sector, and certainly won’t help in putting upward pressure on core inflation. According to the Bloomberg world interest rate projection (WIRP) function, the probability of a rate hike at the September FOMC meeting is 0% while the odds of a December hike have fallen to under 34%.
Market View – Stay the Course: We believe the bull market remains intact. However elevated valuation levels and unfavorable seasonals during the late-Summer/early-Fall months certainly raise the odds of a near term pullback. The “Goldilocks” environment (not too hot, not too cold as far as economic growth and inflation are concerned) should help limit the downside risk. From a macro point of view, the world is enjoying a period of synchronized global growth, which has resulted in a favorable turn in the earnings environment. In addition, valuation levels—while elevated—are far from extreme. If the market were to stage a pullback in the coming months, it would be viewed as healthy and corrective in nature and not the start of a broader leg lower - in other words, a good buying opportunity, especially for longer-term investors.
The Week Ahead: The data calendar will take center stage this week with Friday’s Payroll report being the focal point. Other reports of interest include; the June Case-Shiller home price index, the Conference Board’s August consumer confidence survey, the August ADP national employment report, the first estimate of second-quarter gross domestic product, July personal income and spending, July pending home sale, August motor vehicle sales, and the Institute for Supply Management’s August manufacturing index. The earnings continue to wind down with just seven members of the S&P 500 scheduled to report results. The Fed speaking calendar will be quiet with only Fed Governor Jerome Powell scheduled to speak on Wednesday.
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.
Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.
The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.
The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.
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 09.30.2019 and includes leverage of $11.8bn. 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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