Performance for Week Ending 5/3/2019:
The Dow Jones Industrial Average (Dow) dipped 0.14%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 0.29%, the Standard & Poor’s 500 Index (S&P 500) rose by 0.20% and the Nasdaq Composite Index (NASDAQ) tacked on 0.23%. Sector breadth was positive with 7 of the 11 S&P sector groups finishing higher. The health care sector (+1.27%) was the best performer followed by financials (+1.21%) and industrials (+1.12%).
||Closing Price 5/3/2019
||Percentage Change for Week Ending 5/3/2019
||Year-to-Date Percentage Change Through 5/3/2019
*See below for Index Definitions
MARKET OBSERVATIONS: 4/29/2019 – 5/3/2019
The major market indices finished the week little changed after a payroll related rally on Friday offset a mid-week slump. The S&P 500 finished the week just shy of a new all-time high. Following the best start to the market since 1987, a period of ‘price discovery’ wouldn’t be surprising as investors try to determine what has been priced into the market and what is likely to come to fruition in the weeks/months ahead.
Fed Sends Mixed Message: The broader market hit a wall mid-week after the Federal Reserve dashed hopes of interest rate cuts this year. At the conclusion of the Federal Open Market Committee (FOMC) meeting, the Fed signaled little appetite to adjust rates any time soon, taking heart in continued job gains and economic growth and the likelihood that weak inflation will edge higher. At the after-meeting press conference, Fed Chair Powell said that he didn't see a "strong case for moving" policy "in either direction." Powell did, however, allude to the ‘transitory’ nature of conditions that was keeping inflation below the Fed's 2 percent target rate, comments that investors interpreted as signaling an upward bias on rates later this year.
Q1 Earnings Roundup (as of 5/3): With almost 80 percent of the members of the S&P 500 having reported first quarter results, the quarter continues to shape up at a better than feared pace. Of the 389 S&P 500 companies that have released results, 76 percent have surprised to the upside with the aggregate surprise at nearly 6.3 percent. Aggregate earnings growth is up a muted 1.6 percent on 4.6 percent advance in aggregate revenues. At the end of March analysts were forecast that quarterly results would fall by 3.6 percent, however, taking the better than expected results into consideration, analysts have inched their forecast for the quarter higher, with consensus expectations now seeing a gain of 0.4 percent.
Pace of Hiring Jumps in April: The April payroll report showed the economy is producing solid job growth with steady wage inflation. According to the Labor Department, nonfarm payrolls expanded by a much better than forecast 236K, well ahead of the 190K expected by economists. The unemployment rate dipped to 3.6% (from 3.8% last month), the lowest level in 49 years. Wages expanded by 0.2% during the month and are up 3.2% on a year-over-year basis (unchanged from last month).
Trade Talks Moving Forward: Apart from earnings and economic reports, the U.S.-China trade talks also seem to be progressing. During the week, U.S. Treasury Secretary Steven Mnuchin said the two countries held "productive" talks in Beijing and will continue discussions in Washington in the upcoming week. According to media reports, a final resolution could be hatched out by late-May/early June.
Outlook: We maintain a bullish tilt towards the market and continue to believe there is money to be made over the coming quarters. While a period of consolidation following the strong year-to-date performance cannot be ruled out, a drawdown would be viewed as healthy as it would likely set the stage for the next leg higher. Our view is that as long as the economy and earnings continue to grow – which remains our base-case scenario—equity prices should ultimately follow suit. According to Strategas Research, since 1950 the S&P 500 has gone 4 for 4 (i.e. positive performance in Jan/Feb/Mar/Apr) 15-times, and of those times, the S&P rallied by an average of an additional 10% during the May through December period. The hit rate was 93% (i.e. positive returns were generated in 14 of those 15 years) – stay tuned.
The Week Ahead: Earnings season will begin to wind down with just 58 members of the S&P 500 scheduled to release results. Data reports of interest include; the March JOLTS report, the April producer price index (PPI) and the April consumer price index. The Fed speaking calendar will be busy with ten appearances scheduled throughout the week. Amongst this group will be Fed Chairman Powell on Wednesday, who is scheduled to deliver opening remarks at a Fed conference in Washington.
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.
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.
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