Rally Extends to Fifth Straight Week

Performance for Week Ending 12.1.2023:

The Dow Jones Industrial Average (Dow) finished up 2.42 percent, the Standard & Poor’s 500 Index (S&P 500) added 0.77 percent and the Nasdaq Composite Index (NASDAQ) gained 0.38 percent. Sector breadth was positive with 9 of the 11 S&P sector groups finishing higher. The Real Estate (+4.64%) sector was the best performer while the Communication Services (-2.49%) sector was the laggard.

*See below for Index Definitions

MARKET OBSERVATIONS: 11/27/23  – 12/1/23

The S&P 500 closed higher for a fifth consecutive week and finished the month of November up 8.92 percent, the best monthly gain since July of last year. The gains over the past several weeks have been mostly driven by plunging bond yields amid mounting signs the Federal Reserve (Fed) is managing to tame inflation without breaking the economy. Fed officials have also begun to take on a more dovish tone, which in turn has boosted investor sentiment. Fed Governor Christopher Waller, speaking at the American Enterprise institute in Washington last week, indicated that the Fed could both deliver a 'soft landing' for the world's biggest economy and begin cutting rates as early as the first quarter of next year if inflation continues to moderate at its current pace "for three months, four months, five months." The change in tone from Waller, previously considered one of the more hawkish members of the Fed's rate-setting committee, triggered a sharp rally in Treasury bonds. For the week, the yield on the 10-year Treasury fell 27 basis points to 4.20 percent and is well off the 5.02 percent intraday high reached on October 23.

Beige Book Was Fairly Neutral: The Fed's Beige Book -- a summary of anecdotal surveys of regional business contacts – stated that US economic activity slowed relative to the prior reporting period. The report, which reflected data collected on or before November 17, stated that four districts recorded modest growth, while the remaining eight noted flat growth or slight declines. There was an emphasis on consumer expenditures, particularly in regard to discretionary spending. "Sales of discretionary items and durable goods, like furniture and appliances, declined, on average, as consumers showed more price sensitivity," the report noted. "Travel and tourism activity was generally healthy…Manufacturing activity was mixed, and manufacturers' outlooks weakened." Most districts reported flat to modest improvement in overall employment, although some continued to describe labor markets as "tight," especially in regard to skilled workers. Price and wage growth largely moderated across districts. As in the prior report, tight consumer credit conditions appeared to be a rising concern in several districts. The nationwide summary characterized consumer credit as "fairly healthy," but noted a slight rise in consumer delinquencies.

Economic Roundup: The headline personal consumption expenditures (PCE) price index advanced 3 percent on a year-over-year basis in October, cooling from 3.4 percent in September. The core PCE-–the Fed's preferred inflation measure—rose 3.5 percent but was lower than the 3.7 percent pace from the month earlier. On the employment front, recurring applications for unemployment benefits jumped to the highest in about two years, adding to evidence of a cooling labor market. Continuing claims, which are a proxy for the number of people receiving unemployment benefits, rose to 1.93 million in the week ended Nov. 18. This figure has climbed since September, suggesting out-of-work Americans are finding it more difficult to secure new employment. Meanwhile initial jobless claims rose by 7K to 218K in the week ended Nov. 25, a period that included the Thanksgiving holiday. US sales of new houses fell in October after a downward revision to the prior month as decades-high mortgage rates weighed on demand. Purchases of new single-family homes decreased 5.6% to a 679K annualized pace last month, government data showed. The pace missed all estimates in a Bloomberg survey of economists. Meanwhile, consumer confidence rose for the first time in four months in November, aided by more optimistic views about the economic outlook. The Conference Board Consumer Confidence Index rose to 102 this month from a downwardly revised 99.1 in October. The median estimate in a survey of economists called for a reading of 101.

The Week Ahead: The focal point in the week ahead will be the November payroll report on Friday. According to Bloomberg, nonfarm payrolls are expected to rise by 198K while the unemployment rate is forecast to come in at 3.9 percent, unchanged from October. Other reports of interest include October job openings, the ISM Services Index, and the University of Michigan sentiment and inflation expectations data on Friday. The earnings calendar will move to the backburner for the next few weeks. The Fed speaking calendar will also be quiet as Fed members are subject to blackout rules ahead of the December 12-13 meeting.

— 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.