What happened last week
- The S&P 500 has rallied for its sixth straight week, retracing back to 1Q ‘22 levels.
- Small-caps and other higher beta segments of the US equity market led; US data points to strong labor market and increasing consumer sentiment.
- China dragged international equities behind US stocks; China’s pandemic recovery continues to falter, Moody’s downgraded sovereign credit outlook.
What we’re watching this week
- This week is likely the last week of meaningful trader engagement; liquidity could dry up in the last two weeks, increasing market volatility.
- A steady drip of US economic data: inflation (CPI & PPI), consumer (retail sales), and business sentiment (PMI).
- A torrent of ten central banks (including the Fed) meet this week; on the Fed we are watching for affirmation of four expected cuts in 2024.
Horizon’s Investment Management Views
In its sixth straight weekly rally, the S&P 500 closed above 4600, a level last held in March 2022. In the US, higher beta stocks, like small-caps and mega-cap tech led last week. Internationals, weighed down by firmer dollar and weak data out of China, underperformed US stocks substantially. Although we can see the reversion in year-to-date laggards, like US small-caps, continuing over the next few weeks, we are not extrapolating that theme into 2024 – positive catalysts and supportive narratives are crucial to a durable broadening out of market leadership next year.
U.S. economic exceptionalism, a focus for most of this year, was reinforced last week by: strong job growth, a fall in the unemployment rate, and a material uptick in consumer confidence. Job openings also fell, a helpful development for a Fed still concerned about supply and demand in the labor market. In stark contrast, China’s economic condition continues to deteriorate, most recently reflected in the import data. Moody’s also downgraded China’s sovereign credit last week, citing property sector concerns and a deteriorating growth trajectory. We believe the volatile and uneven recovery could continue to create opportunities for active management.
In what’s likely to be this year’s last week of liquid trading, investors face an economic data and monetary policy deluge: US inflation, both US & Chinese retail sales, and ten central banks (including the Fed) hold their December policy meetings. In their final meeting of the year, we are honing in on the Fed’s 2024 policy guidance (or lack thereof). Since the end of October, investors have priced in another two rate cuts in 2024. Both Powell and the committee, through its projections, will have another opportunity to check investors’ increasingly dovish expectations. Rate volatility has picked up substantially ahead of the meeting, with 2-year Treasury yields surging 20bps off its local lows last week.
CPI = Consumer Price Index, PPI = Producer Price Index, PMI = Purchasing Managers’ 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. 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-cap stocks are represented by the S&P SmallCap 600 Index. It covers roughly the small-cap range of American stocks, using a capitalization-weighted index. Mega-cap tech comprises Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. 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.