Payroll Report on Deck

Performance for Week Ending 8.25.2023:

The Dow Jones Industrial Average (Dow) finished down 0.45%, the Standard & Poor’s 500 Index (S&P 500) added 0.82% and the Nasdaq Composite Index (NASDAQ) gained 2.26%. Sector breadth was mixed with 7 of the S&P sector groups closing higher and 4 closing lower. The Technology (+2.57%) sector was the best performer while Energy (-1.37%) was the worst.

*See below for Index Definitions

MARKET OBSERVATIONS: 8/21/23  – 8/25/23

The S&P 500 finished the week higher, its first weekly gain this month. The Technology sector led the advance following a blowout quarterly earnings report from artificial intelligence (AI) chipmaker Nvidia. The company, also raised forward guidance, citing 'tremendous' demand for its products heading into the back half of the year and beyond. On Friday, Fed Chair Powell delivered his much-anticipated speech at the annual Jackson Hole symposium. The speech was mostly balanced giving both the hawks and doves something to chew on. Powell noted the progress made in cooling inflation while underscoring that there is potentially more work to be done. “The process still has a long way to go, even with the more favorable recent readings,” Powell said. The Fed Chair also delivered a more balanced assessment of the risks of tightening too much versus tightening too little. “Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy,” Powell said. In his concluding remarks, Powell told the group that “at upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”

A recent survey from the National Association for Business Economics (NABE) showed growing confidence that the Federal Reserve will achieve a soft landing for the economy. Nearly 70% of economists were at least somewhat optimistic the Fed can bring inflation down to its 2% target without spurring a recession. That marks a big reversal in sentiment since NABE’s March survey, which showed a similar share indicating they were skeptical of avoiding a downturn. Nearly three in four respondents said current monetary policy is about right, up from nearly 60% in the March survey. Some 56% say it takes a year to 18 months for changes in monetary policy to impact the economy.

Economic Round-Up: Sales of previously owned US homes fell in July to the lowest level since the start of the year, constrained by a lack of inventory and higher borrowing costs. Contract closings decreased 2.2% from a month earlier to a 4.07 million annualized pace, close to the slowest since 2010. While the number of homes for sale rose from a month earlier to 1.11 million, it marked the smallest total inventory for any July in data back to 1999. Meanwhile, new home sales in July came in at a seasonally adjusted annual rate of 714k, above the consensus forecast of 706k. On a year-over-year basis, new home sales were up 31.5% from July of last year. US mortgage applications for home purchases stumbled last week to an almost three-decade low, indicating residential real estate is reeling from the recent spike in borrowing costs. The Mortgage Bankers Association index of home-purchase applications fell 5% to 142, the lowest level since 1995. The data also showed that the contract rate on a 30-year fixed mortgage increased 15 basis points to 7.31% in the week ended Aug. 18 - the highest since late 2000.

The Week Ahead: The focal point of this week’s economic calendar will be the release of the monthly payroll data on Friday. According to Bloomberg, nonfarm payrolls are forecast to expand by 170K while the unemployment rate is expected to hang steady at 3.5%. Other data reports of interest include the Conference Board’s report on August consumer confidence, the July core PCE deflator, and the ISM manufacturing report for August. The Fed speaking calendar will be on the light side with just six presentations on the docket. The earnings calendar will continue to wind down with 12 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.