What’s not to like about this list? Trillions more in stimulus, vaccines allowing a back-to-normal economy and a lowering of the political temperature – those are all good things. Yet, last week was a reminder that markets buy ahead of the news, and sell when the facts are revealed, making for a bumpy ride.
Help is on the way. President-Elect Biden announced his stimulus plan, but it merely met market expectations of around $2 trillion. The next step is harder, getting it through both houses of a narrowly-divided Congress. The final figure is likely to be whittled down. But we doubt that will stop the bullish sentiment. After all, investors continue to buy small-caps in anticipation of better times ahead.
Jilted QQQ lovers. For the major indexes, however, there could be more turbulence as equity positioning still favors the mega-cap companies. Our favorite measure to monitor positioning pain in large-cap equities, the Russell 2000 index versus the NASDAQ 100 index, added 3.8% in relative performance last week. Year-to-date, small-caps (RTY) are ahead by 8.2%, a record start to the year.
Growth slowdown in the here and now outweighed the optimistic future. The S&P 500 fell and credit spreads widened as the extent of the growth hit from the pandemic became clearer. Two data points – jobless claims and retail sales – reinforced how much the out-of-control spread of the virus is hampering economic activity in the U.S.:
- Almost 1 million new job losses were recorded in the second week of January, the most since August
- Retail sales in December contracted for the third straight month
The two hottest topics in the fixed income market were in the news: the Fed asset purchase program and the outlook for inflation. Each took some steam out of the recent market narrative, and yields ended the week lower. Fed Chair Powell squashed talk of a tapering of asset purchases. Central bank leadership is united, there will be no reductions this year. And last week’s Consumer Price Index print was merely in line with estimates. That threw cold water on market-based expectations for hotter inflation in the not-too-distant future.
There is no buyer’s strike in Treasury auctions. Another factor causing bond yields to tumble is the fact that demand for U.S. debt is going up, not down, as interest rates increase. Last week’s 30- year bond auction saw record end-user purchases; fears of a buyer’s strike are not materializing.
What to Watch This Week
- Central banks – This week sees a slew of central bank meetings, 10 by our count. Pay attention to their projections on a recovery and the expected path for monetary policy. Policy is more coordinated than ever, and the $17 trillion in negative yielding global debt exerts a powerful downward force on interest rates. Signs of that changing should be closely monitored.
- Politics – It will be a jam-packed week for politicians in Washington, D.C. Markets will likely ignore the inauguration; watch the backchanneling on Biden’s stimulus bill (Senator Joe Manchin and the centrist Senate Republicans are the focus) and the plan for impeachment in the Senate. Could Senator Mitch McConnell try to gum up the machinery of government with hearings that delay stimulus and cabinet appointments?
- Virus & Vaccines – Vaccine efforts are ramping up, and Johnson & Johnson may report data on their experimental version this week. We are focusing on the new strain, now spreading in the U.S., as something that could materially derail the recovery trajectory.
Related stories:
Only Two Words Matter to Markets: Stimulus Spending
January Could Make History with Small-Caps Leaving Large-Caps in the Dust
Bond Market Bears Growling as 10-Year Yield Breaks Through Important 1% Level
Horizon Investments’ Top Themes for the New Year
PIIGS Fly and Other Stories of Investors Reaching for Risky Bets
Momentum’s No Longer the Stock Market King, Vaccine Will Raise New Leadership
It’s Getting Harder to Fund Retirement Using Bonds
7.9 Trillion Reasons Not to Fight the Fed, ECB, BOJ or BOE
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.
To download a copy of this commentary and the chart of the week, click the button below.
To discuss how we can empower you please contact us at 866.371.2399 ext. 202 or info@horizoninvestments.com.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2021 Horizon Investments LLC
The staples companies were not hurt on the input side...
Insights
Buy the Rumor, Sell the Fact Trips Up Markets
What’s not to like about this list? Trillions more in stimulus, vaccines allowing a back-to-normal economy and a lowering of the political temperature – those are all good things. Yet, last week was a reminder that markets buy ahead of the news, and sell when the facts are revealed, making for a bumpy ride.
Help is on the way. President-Elect Biden announced his stimulus plan, but it merely met market expectations of around $2 trillion. The next step is harder, getting it through both houses of a narrowly-divided Congress. The final figure is likely to be whittled down. But we doubt that will stop the bullish sentiment. After all, investors continue to buy small-caps in anticipation of better times ahead.
Jilted QQQ lovers. For the major indexes, however, there could be more turbulence as equity positioning still favors the mega-cap companies. Our favorite measure to monitor positioning pain in large-cap equities, the Russell 2000 index versus the NASDAQ 100 index, added 3.8% in relative performance last week. Year-to-date, small-caps (RTY) are ahead by 8.2%, a record start to the year.
Growth slowdown in the here and now outweighed the optimistic future. The S&P 500 fell and credit spreads widened as the extent of the growth hit from the pandemic became clearer. Two data points – jobless claims and retail sales – reinforced how much the out-of-control spread of the virus is hampering economic activity in the U.S.:
The two hottest topics in the fixed income market were in the news: the Fed asset purchase program and the outlook for inflation. Each took some steam out of the recent market narrative, and yields ended the week lower. Fed Chair Powell squashed talk of a tapering of asset purchases. Central bank leadership is united, there will be no reductions this year. And last week’s Consumer Price Index print was merely in line with estimates. That threw cold water on market-based expectations for hotter inflation in the not-too-distant future.
There is no buyer’s strike in Treasury auctions. Another factor causing bond yields to tumble is the fact that demand for U.S. debt is going up, not down, as interest rates increase. Last week’s 30- year bond auction saw record end-user purchases; fears of a buyer’s strike are not materializing.
What to Watch This Week
Related stories:
Only Two Words Matter to Markets: Stimulus Spending
January Could Make History with Small-Caps Leaving Large-Caps in the Dust
Bond Market Bears Growling as 10-Year Yield Breaks Through Important 1% Level
Horizon Investments’ Top Themes for the New Year
PIIGS Fly and Other Stories of Investors Reaching for Risky Bets
Momentum’s No Longer the Stock Market King, Vaccine Will Raise New Leadership
It’s Getting Harder to Fund Retirement Using Bonds
7.9 Trillion Reasons Not to Fight the Fed, ECB, BOJ or BOE
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.
To download a copy of this commentary and the chart of the week, click the button below.
To discuss how we can empower you please contact us at 866.371.2399 ext. 202 or info@horizoninvestments.com.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2021 Horizon Investments LLC