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Weekly Market Recap | 1/16/24

What happened last week

  • Magnificent-7 (“MAG-7”) mega-caps led the “broadening-out” trades’ outperformers (e.g. small caps).
  • Benign December CPI & PPI prints contributed to a dip lower in yields; over 6 rate cuts are now expected in 2024.
  • Outside the US, cool inflation data out of China and Japan support the idea of easing global price pressures; on the geopolitical front, Taiwan’s election result yielded a US-friendly President.

What we’re watching this week

  • Lots of Fed members will be on the tape throughout the week; we don’t expect extremely dovish messaging, at least not yet.
  • On the data front: earnings from regional banks, US retail sales, jobless claims, and industrial production, and some growth and consumer data out of China.
  • Monitoring China’s diplomatic reaction to Taiwan’s US-friendly election result.

Horizon’s Investment Management Views

After a shaky start to the year, 2023 trends reasserted themselves last week. The S&P 500 rose to within 30bps of its all-time high, propelled by last year’s high flying “MAG-7” mega-caps. Meanwhile, small caps – the darling of the recent “broadening out” trade – put in a lackluster performance. Although we are doubtful that last year’s extreme spread between the MAG-7 and small-caps will be repeated this year, we should not rule it out. That being said, we don’t view reversion as a fait accompli either; we think that further broadening will rest on whether earnings for the rest of the market catch up to the MAG-7 in 2024.

The major macro release of last week was the December CPI report. The mostly consensus report did not change Fed rate cut timing expectations, but it did change the magnitude of Fed easing expected, driving Treasury yields lower across the curve. Another expected rate cut was added to 2024 pricing, bringing the total to just north of 6.5. Staying on this inflation thread, Chinese and Japanese data pointed towards some easing of global inflation pressures, although we must acknowledge the cost-push risks to global shipping emanating out of the Red Sea.

This shortened trading week should be a busy one. On the qualitative front, we expect the messaging of the many Fed speakers on the tape this week to remain hawkish despite constructive inflation developments. To keep inflationary pressures in check, the Fed likely views it necessary to maintain relatively tight financial conditions (i.e. elevated borrowing costs). In US politics, the Iowa caucuses will kick off election season stateside as Congressional dysfunction threatens another shutdown. Outside the US, the market will continue to digest Taiwan’s election result – we are monitoring China’s diplomatic reaction. On the quantitative front, a trickle of regional bank earnings, US retail sales, industrial production, and jobless claims, and GDP and retail sales figures out of China round out the week.

CPI= Consumer Price Index, PPI= Producer Price Index
The commentary in this report is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here are not investment recommendations, but rather opinions that reflect the judgment of Horizon as of the date of the report and are subject to change without notice. Forward looking statements cannot be guaranteed. We do not intend and will not endeavor to provide notice if and when our opinions or actions change. This document does not constitute an offer to sell or a solicitation of an offer to buy any security or product and may not be relied upon in connection with the purchase or sale of any security or device. Before investing, an investor should consider his or her investment goals and risk comfort levels and consult with his or her investment adviser and tax professional. The “Magnificent 7” Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla. Equities are represented by the S&P 500 Index which is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. Small Caps are represented by the S&P 400. It covers roughly the small-cap range of American stocks, using a capitalization-weighted index. References to indices, or other measures of relative market performance over a specified period of time are provided for informational purposes only. Reference to an index does not imply that any account will achieve returns, volatility or other results similar to that index. The composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change. It is not possible to invest directly in an index. 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. Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC. © 2024 Horizon Investments,LLC.

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