Rally Stalls on Profit Drought
The major market indices finished the week lower as investors digested some of the markets recent gains. Prompting the round of profit taking was a batch of mixed earnings reports from a handful of leading Technology firms, disappointment that the Bank of Japan left its monetary stimulus program unchanged, a report highlighting sluggish US first quarter economic growth, and a mixed update from the Federal Reserve.
May 02, 2016
| By Mike Schwager
Performance for Week Ending 4/29/2016:
The Dow Jones Industrial Average (Dow) gained 0.59%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 0.74%, the Standard & Poor’s 500 Index (S&P 500) closed up 0.52% and the Nasdaq Composite Index (NASDAQ) dipped 0.65%. Sector breadth was mixed with 5 of the S&P sector groups finishing higher and 5 finishing lower. The Energy sector (+5.2%) led on the upside while the Utilities sector (-3.23%) was the laggard.
||Closing Price 4/29/2016
||Percentage Change for Week Ending 4/29/2016
||Year-to-Date Percentage Change Through 4/29/2016
*See below for Index Definitions
MARKET OBSERVATIONS: 4/25/16 – 4/29/16
The major market indices finished the week lower as investors digested some of the markets recent gains. Prompting the round of profit taking was a batch of mixed earnings reports from a handful of leading Technology firms, disappointment that the Bank of Japan left its monetary stimulus program unchanged, a report highlighting sluggish US first quarter economic growth, and a mixed update from the Federal Reserve. For the month of April, the broader indices finished mixed with the S&P producing a total return of +0.39%, the Dow gaining +0.62% and the tech-heavy Nasdaq Composite losing nearly 1.89%.
Fed Meeting: As expected, the Federal Open Market Committee (FOMC) left interest rate policy unchanged at the conclusion of last week’s meeting. The after meeting communique eliminated the statement that "global economic and financial developments continue to pose risks." With stock markets almost back to record highs, commodity prices rebounding, the dollar and corporate bond yields down sharply and incoming data indicating that China's economic growth accelerated in the first quarter, the change seemed justified. The updated statement also noted that 'labor market conditions have improved further even as growth in economic activity appears to have slowed'. The statement singled out slowing consumption growth, but went on to suggest that the fundamentals for household spending remain strong. Overall the changes seems to leave the door open for a hike at the June meeting, however any change but policy will likely depend on the tone of the data reported between now and the June meeting. The market is currently discounting only a 14% probability of a rate hike at the meeting.
Earnings Roundup: With earnings season more than half way over, first quarter results have been lackluster, but certainly better than feared. Through Friday, 310 members of the S&P have reported with 77% surprising to the upside. According to Bloomberg, the average upside surprise was just over 4%. Overall, S&P earnings are tracking down almost 9% while revenues have declined by 2.4%. If current numbers play out through to the end of earnings season, the S&P will have posted three consecutive quarterly declines.
Economic Data – Another Mixed Bag: The Commerce Department reported that the initial estimate of first quarter GDP showed the economy expanding by just 0.5%, slightly below economists forecast for a 0.7% gain and down from the 1.4% pace in the fourth quarter. Personal Consumption fared a bit better by rising 1.9%, modestly above the 1.7% estimate. Over the past several years a seasonal pattern to GDP growth has developed where weak first quarter growth has been followed by a strong rebound in the second quarter. According to the updated Atlanta Fed GDP Now model Q2 growth is currently forecast to rebound to 1.8%.
Layoffs remain at rock bottom rates as suggested by weekly jobless claims which remained just off the lowest level in four decades. On the housing front, the National Association of Realtors reported that pending home sales rose 1.4% in March to a 10-month high and solidly above the consensus estimate for a 0.5% gain. The better than expected increase suggests the spring home buying season is off to a good start. The Conference Board’s Consumer Confidence Index fell in April, as consumers grew wearier about the near-term outlook. Durable goods orders rose 0.8% during March, below expectations of a 1.7% increase. Excluding the volatile transportation component, orders fell 0.2%.
The Week Ahead: First-quarter earnings season will remain busy, with 126 members of the S&P 500 scheduled to report. Included in this group are Dow Jones components Pfizer and Merck & Co. The focal point of the data calendar will be the monthly Payroll report on Friday. According to Bloomberg, non-farm payrolls are expected to expand by 200K and the unemployment rate is forecast to hang steady at 5.0%. Other reports of interest include the April ISM manufacturing survey, March construction spending, the April ADP Employment Report, and the first estimate of first-quarter productivity. Several Fed officials are scheduled to make public appearance this week, including; Atlanta Fed president Dennis Lockhart, San Francisco Fed president John Williams, Cleveland Fed president Loretta Mester, Minneapolis Fed president Neel Kashkari, St. Louis Fed president James Bullard and Dallas Fed president Robert Kaplan.
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.
January 24, 2019
Amber Lights Flash at Davos
Should the mood this year at Davos prove once again to be a contra-indicator, this may be the signal that the economy is likely to re-accelerate soon and that the party in risk assets continues.
January 18, 2019
Up the Escalator, Down the Elevator
An uptick in corporate defaults in 2019 will mark the beginning of a prolonged period of stress in the corporate bond market.
January 16, 2019
10 Macro Themes to Watch in 2019
Ten charts illustrate the macroeconomic trends most likely to shape Fed policy and investment performance in 2019 and beyond.
Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”
In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
*Assets under management is as of 12.31.2018 and includes leverage of $12.4bn. Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.
Guggenheim Investments. All rights reserved.
Research our firm with FINRA Broker Check.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.