What happened last week
- Economic growth remains hot with inflation cooling – the probability of a ‘soft landing’ or ‘no landing’ is increasing.
- The strong economic data coupled with equally positive signals of consumer demand from 4Q earnings pushed US large-caps to fresh all-time highs.
- International equities outperformed their U.S. counterparts on strong policy support out of China (direct market intervention, rate cuts).
What we’re watching this week
- Extremely busy week on both the macro and micro fronts this week.
- Micro: ~40% of the S&P 500 and ~50% of the NASDAQ 100 by market cap to report 4Q earnings this week.
- Macro: Fed expected to hold rates and to signal rate cuts sometime 1H‘24, Treasury quarterly refunding, January payrolls, and US response to the first deadly Iran-backed militia attack since October.
Horizon’s Investment Management Views
Last week’s economic data was as goldilocks as it gets. GDP for the fourth quarter surprised to the upside, beating out almost all economist estimates. Above-trend growth is not fueling inflation; trend measures of core PCE inflation continue to print within range of the Fed’s 2% target. Equity markets responded in kind, notching fresh all-time highs for both U.S. equities (S&P) and mega-cap tech (NASDAQ 100). International stocks had a strong week as well, besting domestic equities due to further measures from policymakers in China to support their equity markets, dovish messaging from the European Central Bank (ECB), and upside earnings surprises in key European names. Moves in the bond market were muted despite the GDP surprise.
Earnings season continued last week with more mixed reports. As if the mammoth GDP print wasn’t enough evidence, American Express highlighted on-going strength from the consumer. Meanwhile, volatility around chipmakers, AI-related firms, and Tesla, the sole reporter from the “Magnificent-7”, reinforced our view that 2024’s price action may not look exactly like 2023’s. This week will further determine the near term outlook for both market levels and breadth as 5 of the “Magnificent-7” report. Guidance for 2024, cost controls, and unexpected AI-related developments are top of mind for the team as we enter this crucial week.
Not to be outdone by the earnings fireworks, this week has plenty of macro catalysts to keep investors busy. The quarterly Treasury refunding announcement comes first, with amounts of debt released on Monday and composition and guidance on Wednesday morning. Next is the FOMC meeting on Wednesday afternoon, where we are focused on any changes to the statement and the Chair’s guidance in the presser. Lastly, Friday’s jobs report will provide more data as to the durability of the economic strength that we have seen for the past few quarters, as will the Fed’s preferred gauge of wage inflation on Wednesday.
GDP = Gross Domestic Product. PCE = Personal Consumption Expenditures. 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. The Nasdaq 100 is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. 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.