What happened last week
A short trading week saw the S&P 500 inch toward an all-time high.
Short covering starts to narrow the dispersion between year-to-date winners and losers.
Investors sold Nvidia stock despite stronger-than-expected earnings and revenues; AI trade may be in transition.
What we’re watching this week
Economic updates include inflation readings in the US and Europe and revisions to the US’s 3Q GDP.
Commodity markets are closely watching Thursday’s OPEC meeting.
Ahead of the Fed’s media blackout starting this weekend, Powell and other FOMC heavy-weights will speak throughout the week.
Horizon’s Investment Management Views
In a rather listless holiday-shortened trading week, equity markets meandered higher, bringing the gains in the S&P 500 to almost 11% since the late October lows. The Index closed Friday less than 5% from its all-time high. While this has been a quick, sharp rally, we think the bullish price action could extend into the end of the year. Year-to-date laggards have only recently begun benefitting from short-covering flows. Given the performance spreads between the outperformers and underperformers this year, we think further rebalancing is in store for the next few weeks.
The highlight of last week from a market’s perspective was the earnings report from Nvidia after Tuesday’s close. Despite exceedingly strong results and a raise to their guidance for the next quarter, the stock sold off on Wednesday and Friday – which doesn’t signal an end to the AI trade in our view (far from it), but it does highlight the above point that trends may pause for a while. The stock closed Friday up almost 230% this year. Additionally, the market reaction to Nvidia earnings may mark a transition in the AI trade away from the “picks and shovels” hardware companies and towards the software services and model providers of the technology.
Highlights for the week ahead include inflation updates in Europe (Wednesday and Thursday) and the Fed’s preferred inflation measure, the personal consumption expenditures price index (PCE), on Thursday. Revisions to third-quarter GDP and consumer confidence round out the US economic calendar. OPEC’s disputes about the future supply picture were on display as their meeting last weekend was postponed to Thursday. With crude down almost 20% from its September high, the stakes are high for the cartel. Lastly, Powell and other important FOMC members will provide investors with their last thoughts on the economy ahead of the Fed’s media blackout starting on Saturday.
Short covering refers to buying back borrowed securities in order to close out an open short position at a profit or loss.
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