/perspectives/weekly-viewpoint/strong-jobs-report-leaves-markets-at-fresh-highs

Strong Jobs Report Leaves Markets at Fresh Highs

The major market indices finished the week higher reflecting strong third quarter earnings reports, a rebound in the labor market, a batch of economic data showing the fourth quarter is off to a solid start, and hints from the Federal Reserve that they are in no hurry to raise interest rates. 

November 08, 2021    |    By Michael Schwager

Performance for Week Ending 11.5.2021:

The Dow Jones Industrial Average (Dow) finished up 1.42%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 2.25%, the Standard & Poor's 500 Index (S&P 500) gained 2.00% and the Nasdaq Composite Index (NASDAQ) tacked on 3.05%. Sector breadth was positive with 9 of the 11 S&P sector groups closing higher. The Consumer Discretionary sector (+4.99%) led the gains followed by Technology (+3.34%) and Materials (+3.19%).

Index* Closing Price 11/5/2021 Percentage Change for Week Ending 11/5/2021 Year-to-Date Percentage Change Through 11/5/2021
Dow 36327.95 +1.42% +18.69%
Wilshire 5000 48868.23 +2.25% +23.85%
S&P 500 4697.53 +2.00% +25.07%
NASDAQ 15971.59 +3.05% +23.92%

*See below for Index Definitions

 
MARKET OBSERVATIONS: 11/1/21 – 11/5/21

The major market indices finished the week higher reflecting strong third quarter earnings reports, a rebound in the labor market, a batch of economic data showing the fourth quarter is off to a solid start, and hints from the Federal Reserve that they are in no hurry to raise interest rates. All four of the indices that we track closely, closed the week at fresh all-time highs.

FOMC Meeting: As expected, at the conclusion of last week's FOMC meeting, Fed officials announced plans to begin scaling back their bond-buying stimulus program later this month and end it by next June. The post meeting statement said they still expect that elevated inflation levels would fall because high readings are "largely reflecting factors that are expected to be transitory." During the after-meeting press conference, Fed Chair Powell said officials can be patient on raising interest rates but won't flinch from action if warranted by inflation readings. “We think we can be patient. If a response is called for, we will not hesitate,” he told the audience. Tapering “does not imply any direct signal regarding our interest rate policy,” Powell added, noting that the pace of tapering put them on track to wrap the process up by mid-2022 but could speed up or slow down depending on the economic outlook. The Fed will reduce Treasury purchases by $10 billion and mortgage-backed securities by $5 billion each month. The FOMC maintained its target range for its benchmark policy rate at zero to 0.25%.

Payroll Report: The Labor Department reported that nonfarm payrolls in October rose by a better than expected 531K while the unemployment rate fell to 4.6% from 4.8% in September. Additionally, there were positive job revisions of 235k to the previous two months. In another sign of labor market improvement, the Labor Department earlier in the week reported that initial jobless claims fell 14K to 265K, the fifth consecutive weekly decline and the lowest level since the pandemic began. The four-week moving average—which smooths the week to week volatility—fell by 15k to 285k, also a new pandemic low. In short, the labor data suggests the economy has shifted back into high gear after a temporary Delta slowdown during the summer months.

Earnings Roundup: With almost 90% of the S&P 500 having released results, third quarter earnings season has solidly exceeded expectations and has been a key driver of the market's recent performance. Through Friday, 447 members of the S&P 500 have released results with just over 81 percent surprising to the upside. Aggregate earnings are up over 41% on a year-over-year basis, solidly ahead of the 28% growth rate that analysts were forecasting at the start of October. On the sector front, the highest growth is coming from the Materials sector (+90.8%) followed by Industrials (+70.5%) and Technology (+41.2%). According to Bloomberg, full year 2021 earnings are now forecast to grow by over 46% on a year over year basis, more than double the forecasted rate at the start of the year.

Bullish Narrative Intact: As we look out over the remainder of the year, our positive view on the equity market remains intact. While volatility is likely to remain elevated and the pace of gains will probably slow through the end of the year, we feel the macro environment will remain supportive and should continue to provide a sturdy backbone for additional upside. Although the US economy has recently shown some signs of slowing, growth in the quarters ahead is still expected to remain elevated. The US consumer is in good shape and savings rates remain above pre-pandemic levels, suggesting that as consumers become more comfortable with the economic recovery, pent up demand will be unleashed. Earnings expectations also suggest solid forward growth. Based on consensus expectations from Bloomberg, earnings are forecast to grow by over 46 percent this year followed by about 8 percent growth in 2022 and just under 10% in 2023. While seasonality could act as a tailwind in the months ahead, a period of consolidation cannot be ruled out. However, if we were to see a drawdown in prices, we would view it as an opportunity to increase equity exposure.

The Week Ahead: Inflation will be the focus of this week's data calendar with the Producer Price Index (PPI) out on Tuesday followed by the Consumer Price Index (CPI) on Wednesday. The data is expected to provide further insight into the debate over how transitory inflation is proving to be. Other economic reports of interest include the JOLTS job opening figures on Thursday and the University of Michigan's consumer sentiment index on Friday. Third quarter earnings season will continue to wind down with only 13 members of the S&P 500 scheduled to release results. The Fed speaking calendar will be active with ten appearances on the docket, including two from Fed Chair Powell. Another potential area to keep an eye on will be any developments on Fed appointments, with Chair Powell's current four-year term coming to an end in early February. President Biden said last week that he would announce his nominees “fairly quickly.”

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.

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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