/perspectives/weekly-viewpoint/stimulus-junkies-fearing-withdrawal-symptoms

Stimulus Junkies Fearing Withdrawal Symptoms

The Dow Jones Industrial Average (Dow) fell 1.17%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.95%, the Standard & Poor's 500 Index (S&P 500) declined by 1.01% and the NASDAQ Composite Index (NASDAQ) shed ...

June 17, 2013    |    By Mike Schwager

Performance for Week Ending 6/14/13:

The Dow Jones Industrial Average (Dow) fell 1.17%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.95%, the Standard & Poor’s 500 Index (S&P 500) declined by 1.01% and the NASDAQ Composite Index (NASDAQ) shed 1.32%. Sector breadth was negative as all 10 of the S&P sector groups finished lower. The Financials (-2.09%) was the worst performer followed by Energy (-1.67%) and Technology (-1.53%).

Index* Closing Price 6/14/2013 Percentage Change for Week Ending 6/14/2013 Year-to-Date Percentage Change Through 6/14/2013

Dow

15070.18

-1.17%

+15.00%

Wilshire 5000

16847.32

-0.95%

+14.15%

S&P 500

1626.73

-1.01%

+14.06%

NASDAQ

3423.56

-1.32%

+13.38%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 6/10/13 - 6/14/13

The major market indices finished lower for the third time in the past four weeks as investors continue to fret over the future of the Federal Reserve’s (FED) bond buying program. While it seems the market is starting to come to grips with the notion that bond buying activity will be tapered at some point, the uncertainty is being driven by the question of when and by how much.   While the decision will ultimately be data dependent, a recent survey by Bloomberg showed that economist expect the FED to trim their quantitative easing program to $65 billion a month from $85 billion per month at the Oct. 29-30 Federal Open Market Committee (FOMC) meeting.

Investors will look to get some clarity on the situation at the conclusion of this week’s FOMC meeting. Last Thursday, noted-FED watcher John Hilsenrath of the Wall Street Journal published an article that appeared to be a preview of the upcoming meeting. The article seemed to suggest the FOMC will take on a more “dovish” tone than what is currently priced into the market.   With all the recent chatter about tapering, bond yields (and mortgage rates) have started to backup and there may be growing nervousness within the FED that the rise in rates could choke-off the still fragile recovery.   Hilsenrath opined that FED Chairman Bernanke is likely to reemphasize that he expects a “considerable” amount of time to pass between ending the bond-buying program and raising short-term rates. Investors tend to pay attention to Hilsenrath as he is known to be the FED’s preferred media mouthpiece and has telegraphed almost every action the FED has made over the last several years.   Bernanke’s press conference is scheduled for Wednesday at 2:30ET – stay tuned.

Economic Roundup
With the market in the early stages of what, I believe, appears to be a transitioning from a liquidity driven market to one that focuses more on fundamentals,   the strength (or weakness) of incoming data will likely become a key catalyst of near term market performance.

Last week’s economic calendar was relatively quiet; however the few reports that were reported were generally positive. The Commerce Department reported that Retail Sales during the month of May rose by a better than expected 0.6%.   The report suggested that improving economic and labor conditions coupled with higher housing and equity prices are encouraging consumers to open their wallets.   Sales excluding Autos rose by 0.3% - on target with economists’ expectations.   The retail sales report tends to carry a lot of weight as consumer spending accounts for over 70% of the US economy.   Elsewhere, the Labor Department reported that initial jobless claims during the week ended June 8 fell 12K to 334K. Results were solidly better than the 346K expected by economists.   On Friday, the University of Michigan’s consumer confidence index fell short of economists’ expectations; however, the index still remained just off the highest level in almost six years.

Technicals
Technicals were once again in play last week as the S&P 500 retested its 50-day moving average (1613 as of Friday) for the second time in as many weeks. The 50-day is closely watched by the trading community and the successful “test” suggests underlying demand at this critical support level. Since the start of the year the ‘50’ has been tested several times and in each case the support level acted as short term catalyst to push stocks higher.  

The broader trend of the market also remains supportive as does the underlying leadership.   Since mid-April cyclical sectors (those more levered to the economy) have been outperforming defensive sectors on a relative basis. In addition, small-cap stocks have been outperforming their large-cap brethren suggesting investors are getting more comfortable with taking on risk.

As mentioned last week, technical analysis is the study of price trends and patterns in the market place.    While many asset managers shrug off the use of technical analysis and consider the practice the equivalent of “market voodoo,” traders tend to use technical’s to help shape and define risk. Remember if enough eyeballs are focused on something then that it becomes important.

The Week Ahead
The focal point of the upcoming week will be the FOMC meeting scheduled for Tuesday and Wednesday.   At the conclusion of Wednesday’s meeting FED Chairman Bernanke will host a press conference to update investors on the current state of the economy.   While no changes in the FED policy are expected to emerge, investors will be looking for clarity on future of the FED’s bond buying activity.   The economic calendar picks up this week with housing and regional manufacturing data in the spotlight.   Other reports of interest include initial jobless claims and the leading economic indicators report (both out on Thursday).    Other events of interest will be the kick-off of the G-8 meeting on Monday. Group of Eight leaders are expected to debate whether austerity is aiding or harming the global economy as well as tackling key topics like tax evasion and boosting global trade. Japanese Prime Minister Shinzo Abe’s economic policies and the Syrian civil war are also likely to be among other issues discussed.


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 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.

The S&P/TSX Composite Index is a capitalization-weighted index designed to measure market activity of stocks listed on the Toronto Stock Exchange (TSX). The index was developed with a base level of 1000 as of 1975.

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.


FEATURED PERSPECTIVES

April 09, 2019

Forecasting the Next Recession: How Severe Will the Next Recession Be?

Our Recession Probability Model and Recession Dashboard suggest the recession could come as early as first half of 2020 but may not be as severe as past recessions.

March 07, 2019

Late-Cycle Drama Is Unfolding

Risk assets will likely enjoy another rally while the Fed stays on hold, but the pause will only allow excesses to become more pronounced.

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.


VIDEO

Forecating the Next Recession 

Forecating the Next Recession

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.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

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.”







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 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.