S&P Back in the Black, Payroll Report on Deck

The Dow Jones Industrial Average (Dow) rose 1.36%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.28%, the Standard & Poor’s 500® Index (S&P 500) gained 1.26% and the NASDAQ Composite Index (NASDAQ) tacked on...

March 03, 2014    |    By Mike Schwager

Performance for Week Ending 2/28/14:

The Dow Jones Industrial Average (Dow) rose 1.36%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.28%, the Standard & Poor’s 500® Index (S&P 500) gained 1.26% and the NASDAQ Composite Index (NASDAQ) tacked on 1.05%. Sector breadth was positive as 8 of the 10 S&P sector groups finished higher. The Consumer Discretionary sector (+2.39%) led the way higher followed by Materials (+1.75%) and Consumer Staples (+1.75%).

Index* Closing Price 2/28/2014 Percentage Change for Week Ending 2/28/2014 Year-to-Date Percentage Change Through 2/28/2014





Wilshire 5000




S&P 500








*See below for Index Definitions

MARKET OBSERVATIONS 2/24/14 - 2/28/14

The major market indices finished the week higher. After posting gains in three of the past four weeks, the S&P 500 is back in positive territory. Investors appear to have shaken off the early year jitters and now seem to be growing more confident in the economic outlook. Markets also shrugged off the tensions in the Ukraine, as they are currently being viewed as a “local” issue.

After being postponed for two weeks due to weather related issues, Federal Reserve (Fed) Chairwoman Janet Yellen returned to Capitol Hill last week to testify in front of the Senate Banking Committee. While Yellen’s prepared remarks were boilerplate from her testimony earlier in the month to the House Financial Services Committee, they were still well received by the market due to the recent softness in economic data. Yellen noted that weather likely played a role in the recent weakness, although to what extent is still not clear. The Fed chief also conceded that if the data continues to deteriorate, the Fed might slow their tapering of bond buying. Yellen stressed that the overall economy has strengthened and the outlook for the economy in the coming years has improved, however, the economy is still several years or more away from operating normally. In other words, she is in no hurry to start raising rates.

Economic Roundup
Last week’s batch of economic data contained some encouraging signs. On the housing front, the Commerce Department reported that new home sales surged by 9.6% in January to 468K annualized units, the highest level in more than 5 years. Despite the adverse weather conditions across most of the country, the gain suggested underlying demand and buying intentions have remained healthy. The Commerce Department also reported that Durable Goods Orders during the month of January fell by 1.0% but the results were ahead of the 1.7% decline expected by economists. Excluding the volatile transportation component, Durables rose 1.1% also better than the expected 0.3% drop.  The capital goods non-defense (ex-aircraft) component of the report—which is used as a proxy for business spending—rose 1.7%. Elsewhere, the Labor Department reported that initial jobless claims during the week ended February 22 rose 14K to 348K. The 4-week moving average—which helps smooth the week to week volatility—came in at 338K, unchanged from the prior week and down from the recent peak of 359K reached in late-December.

Fourth Quarter Earnings
With fourth quarter earnings season rapidly coming to an end; overall results appear to be shaping up as one of the best quarters in quite some time. According to Bloomberg, through Friday 486 members of the S&P 500 have reported results, with overall earnings up by 9.2%. Of the 486 companies, 66.5% have beaten expectations while just under 22% have fallen short. The current “beat” rate remains modestly ahead of the long-term average of 63%.

The Week Ahead
The economic calendar will be the focal point in the upcoming week with all eyes on Friday’s Payroll report. According to Bloomberg, economists are expecting nonfarm payrolls to rise by 150K and the unemployment rate to hold steady at 6.6%.  Private payrolls—which filter out government hiring/firing—are expected to rise by 155K. Weather could once again be a factor as the “reference week” for the payroll survey (i.e. the week that includes the 12th day of the month) was plagued by bad weather conditions throughout much of the Northeast. Other economic data of interest includes the Institute for Supply Manufacturing (ISM) manufacturing and nonmanufacturing reports, personal income/spending, weekly jobless claims, and factory orders. The earnings calendar continues to wind down with only 8 members of the S&P 500 scheduled to report results.  Fed heads will be out and about during the week with over half dozen speeches on the dockets.

Despite an unsettled start for the U.S. markets, I continue to believe they remain poised to move higher during the course of the year, although the pace of gains is likely to be more muted relative to 2013. While setbacks could occur along the way, the stage appears set for the market to deliver solid performance reflecting a combination of multiple expansion and corporate profit growth, as well as an expected increase in equity portfolio flows.

The U.S. economy is expected to continue to gain traction, reflecting the ongoing gradual recovery in the housing sector, falling energy prices and reduced fiscal headwinds. While consensus expectations are for near 3% GDP growth in 2014, the risk appears to be skewed to the upside. Pent-up demand resulting from the huge gap in household formation over the prior several years should continue to buoy the housing market. The sector may also benefit from the rising cost of renting and the still-attractive level of mortgage rates. Gradual loosening of lending standards could also become a tailwind. A pickup in global demand would bode well for the U.S. manufacturing sector. While the sector has been shrinking since the mid-1960s and currently accounts for only about 12% of U.S. GDP, it is well positioned to expand as a result of lower operating costs due to improvements in productivity, new investments and declining energy and commodity prices. In addition, U.S. corporations are bringing jobs back home as rising overseas labor costs, a more competitive U.S. labor force and the expense of shipping have all diminished the economic benefits of outsourcing. The consumer segment of the economy should continue to benefit from an increase in net worth resulting from the rebound in housing and asset prices. This increase in “wealth” has recently boosted retail sales and consumer sentiment measures, suggesting consumers could continue to ramp up their consumption during 2014.

While the outlook for the domestic markets remains favorable, attractive relative valuation and improving macro conditions should set the stage for even higher returns out of the Eurozone. European risk assets should also benefit from reduced fiscal headwinds, supportive monetary policy and an uptick in economic growth. With the prospect of better economic growth, the diminishing threat of a Eurozone debt crisis, and the investor-friendly European Central Bank, patient investors are likely to be rewarded over the coming years.

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.

ISM Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys. 

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.

Past performance is no guarantee of future results. 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 gua rantees 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.

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.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC.

© 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.