The Consumer Will be in Focus in the Week Ahead

Performance for Week Ending 8.11.2023:

The Dow Jones Industrial Average (Dow) finished up 0.62%, the Standard & Poor’s 500 Index (S&P 500) lost 0.31% and the Nasdaq Composite Index (NASDAQ) fell 1.90%. Sector breadth was positive with 7 of the S&P sector groups closing the week higher and 4 closing lower. The Energy (+3.54%) sector led on the upside followed by the Healthcare (+2.46%) and Utilities (+0.84%) sectors. The Technology sector (-2.87%) was the biggest loser.

*See below for Index Definitions

MARKET OBSERVATIONS: 8/7/23  – 8/11/23

Stocks finished the week mixed with the blue-chip Dow 30 outperforming the broader S&P 500 and Nasdaq Composite Indices. Trading was very volatile with the market averages see-sawing between gains and losses over the course of the week. Overall trading volumes were on the light side as we remain stuck in the belly of the summer doldrums. As such, low liquidity tends to exaggerate market moves-both higher and lower–and that may have been the case with last week’s whippy trading activity. Adding to the negative tone was the ratings downgrade of 10 small and midsized banks by Moody’s Investors Service. The rating agency cited higher funding costs, potential regulatory capital weaknesses and rising risks tied to commercial real estate as the reason for the review.

Last week, the Labor Department reported that both headline and core consumer prices climbed by 0.2% in July, on target with expectations. On a year-over-year basis, headline prices rose by 3.2%, less than the 3.3% forecast by economists polled by Bloomberg, but higher than the 3% reading from the prior month, and it was the first reacceleration in 13 months. Meanwhile, the increase in core inflation, which excludes food and energy prices, over the past year slowed to 4.7% from 4.8%, the lowest rate in almost two years. Taking some of the shine off the report were hawkish comments following the release from San Francisco Fed President Mary Daly who warned that while recent inflation data was moving in the right direction, more progress was needed before she would feel comfortable that the central bank had done enough. Earlier in the week, Philadelphia Fed President Patrick Harker said the US central bank may be able to cease interest-rate increases, barring any surprises in the economy, though rates would need to stay at their current elevated levels for some time. “Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions, we have taken do their work,” Harker said. The CME FedWatch tool suggests an 88.5% chance that the Fed holds its benchmark lending rate steady at between 5.25% and 5.5% at the September FOMC meeting.

Q2 Earnings: Second quarter earnings season continues to wind down. Through Friday, 455 members of the S&P 500 have reported results with nearly 80% beating expectations. Aggregate earnings for the group are down just over 8%, but still on target with the 8% decline that analysts were forecasting at the start of reporting season. On the sector front, Consumer Discretionary has recorded the strongest growth while the Energy sector has delivered the weakest. According to Bloomberg data, earnings growth is currently expected to be weak (i.e., negative) through the third quarter of this year before returning to positive territory during the fourth quarter.

Economic Round-Up: US small-business sentiment rose in July to an eight-month high amid a broader upswing in optimism about the outlook for the economy. An index maintained by the NFIB rose by 0.9 point to 91.9. The share of small-business owners expecting better business conditions over the next six months rose to the highest level since August 2021. US mortgage rates jumped above 7% in the last week with the contract rate on a 30-year fixed mortgage ring by 16 basis points to 7.09%, according to Mortgage Bankers Association, the highest since November. Meanwhile, initial jobless claims rose by 21K to 248K in the week ending Aug. 5. The four-week moving average rose to 231K from 228.3K in the prior week.

The Week Ahead: On the data front, all eyes will be on Tuesday’s retail sales report for July. According to Bloomberg, economists expect retail sales to grow by 0.4%, up from 0.2% in June. Another important insight into the US consumer will come from retailer earnings reports, including Home Depot (Tuesday), Target (Wednesday) and Walmart (Thursday). On the central bank front, the FOMC minutes from the July Fed meeting will be released on Wednesday and investors are expected to parse the wording for hints on the direction of rates.

— By Michael Schwager, Chief Market Strategist, Managing Director

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 Index^SM 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.