What happened last week
- Stocks and bonds sold off as geopolitical tensions outweighed strong economic and fundamental data.
- Long-end Treasury yields surged, sending the S&P 500 to close below its 200-day moving average on Friday.
- The 20-year U.S. Treasury auction, a less liquid maturity, went much better than expected.
What we’re watching this week
- As a share of market cap, 40% of the S&P 500 and 50% of the NASDAQ 100 will report Q3 earnings this week.
- On the data front, we are assessing whether the recent weakness in Treasury auctions will continue; additionally, global PMIs, 3Q US GDP, Core PCE, and consumer data.
- We are continuing to closely track Middle Eastern geopolitical developments for backsliding into regional conflict.
Horizon’s Investment Management Views
Equities sank on the week as strong economic data and solid earnings reports could not overcome the barrage of negative newsflow out of the Middle East. The S&P 500 closed Friday below a significant trend indicator, the 200-day moving average, and also took out all of the gains since the surprisingly strong September jobs release. As long-term interest rates continue to surge, investors are struggling to maintain the bullish narrative of equity resilience and optimistic earnings expectations. The unwieldy mass of earnings and economic data, not to mention hard-to-model geopolitical risk, may continue to challenge investors’ assumptions about equity fundamentals over the next week.
As equity investors teeter between earnings and geopolitics, bond investors continue to demand higher yields. Longer-term paper was again the nexus of weakness in the bond market; at one point last week, benchmark 10-year Treasury yields were up almost 40 bp from their closing levels the prior Friday. Such an extreme move, coupled with a rejection of the key 5.0% 10-year yield level, points to an exhaustion of the trend higher. If this week’s Treasury auctions follow the strength of the 20-year bond last week, yields could reverse sharply lower in the near term.
It is set to be another busy week, with slightly less than half of the S&P 500 reporting 3Q earnings, including some of the “Magnificent 7”. In the back half of the week, economists expect quarterly economic growth to accelerate to 4.5% as the Fed’s preferred inflation gauge, PCE, is expected to print a slightly lower, albeit elevated, figure. We are assessing how the market digests this deluge of information while closely watching the extremely fluid situation in the Middle East. How the price action shapes up, especially given the key technical levels across stocks and bonds noted above, could strongly influence trends into year-end.
The “Magnificent 7” are Tesla, Apple, Nvidia, Microsoft, Amazon, Meta and Alphabet. 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. 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 100 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.