What happened last week
- Investors reduced market exposure due to geopolitical tensions weighing on equities for the second week in a row.
- The relative stability in interest rates and a strong GDP release were no match for disappointing earnings.
- Treasury auctions last week went well as the market processed an additional supply of coupon securities.
What we’re watching this week
- We are watching for an escalation from Iran and its proxies after the escalation in the Israel-Hamas war.
- Lots of data this week – Treasury refunding, Federal Reserve and Bank of Japan policy meetings, nonfarm payroll (NFP), employment cost index, and consumer confidence.
- The final big week of earnings with about a quarter of the S&P 500, including Apple, reporting.
Horizon’s Investment Management Views
It was another tough week for equities as the conflict in the Middle East escalated, and generally weak earnings reports outweighed the stability in interest rates and a strong 3Q GDP print. Both U.S. and international stocks are now in a technical correction (-10% from highs). The outperformance of popular shorts and underperformance of year-to-date winners were indicative of investors reducing market exposure. Emerging markets led on the week due to stepped-up stimulus efforts out of China. We do not believe last week’s action is the beginning of new trends in equity markets, but we are prepared to change our stance if the recent price action continues.
Rising geopolitical tensions and Israel’s late Friday ground invasion of Gaza are likely too big to ignore; we expect a reversal in the recent losses for crude oil and energy stocks, as well as further safe haven demands in the week ahead. In the biggest week for earnings in the S&P 500, companies generally failed to meet the high bar set by the market. Worryingly, revenue beats are hard to come by, indicative of a slowdown that runs counter to last week’s impressive GDP release. The silver lining is that earnings are growing again – but that may not affect stocks in the coming weeks.
Last week, we saw a meaningful sign of stability in a major driving force of recent price action – the long end of the bond market. Investors digested a deluge of Treasury supply, and rates ended the week slightly lower across the yield curve, an important vote of confidence by investors. Once we get through the Treasury’s quarterly refunding announcement on Wednesday, we are hopeful that investors will put the bond woes behind them. The upcoming Fed meeting is likely a non-event, but another big slate of S&P 500 earnings, the October jobs report, and the Q3 employment cost index will likely keep investors on their toes all week.
The nonfarm payroll (NFP) report is a key economic indicator for the United States and represents the total number of paid workers in the U.S. excluding those employed by farms, the federal government, private households, and nonprofit organizations. 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.