What happened last week
- Stocks ended the week higher on a mix of very strong AI-driven mega-cap earnings and a large upside surprise to January U.S. payrolls.
- Smaller than expected Treasury bill issuance and commercial real estate concerns could not overcome healthy earnings and economic data.
- Fed Chair Powell pushed back on a March rate cut and hinted in his Sunday interview that the cutting cycle may start mid-year.
What we’re watching this week
- There is a much lighter week ahead; we are watching the price action, market breadth in particular, for further widening in favor of mega-caps.
- In U.S. data, investors will process the Fed’s quarterly bank lending survey (SLOOS) and backfilled CPI basket weight adjustments.
- Outside the U.S., we are watching Chinese inflation for signs of continued deflation.
Horizon’s Investment Management Views
Investors processed a litany of important catalysts last week, including policy decisions from the Fed and Treasury, earnings from approximately 50% of the NASDAQ 100 by market cap, renewed fears over regional banks, and January’s jobs report. The refunding announcement from the Treasury proved largely uneventful, if not slightly disappointing, to equity investors looking for lower yield levels from increased bill issuance. Yields headed lower anyway last week, albeit for the wrong reasons – commercial real estate losses, a dividend cut at New York Community Bank, and concerns at a few other banks across the globe caused investors to dust off last March’s playbook. Expectations for immediate interest rate cuts were dashed by the Fed’s firm pushback on a March rate cut and the strongest payrolls print in a year.
Despite delayed Fed easing due to strong growth and simmering concerns over regional banks’ commercial real estate loan portfolios, fresh all-time highs for the S&P 500 were supported by AI-driven mega-cap earnings surprises and expectations of further labor market strength propping up a solid consumer. If last week is any template, we expect market gains to continue to be concentrated in the mega-caps, frustrating those looking for a broadening out of the market into last year’s laggards. Small-caps closed the week lower, and international equities ended flat as the “Magnificent 7” soared nearly 5% last week.
This week, macro investors will digest the Fed’s quarterly bank lending survey, inflation in China, the yearly adjustment factors to the CPI basket, and various global central bank meetings. Meanwhile, fundamental investors will be busy updating their 2024 projections now that we are through the bulk of earnings season. Technically, market breadth and spot-up vol-up price action in equity derivatives markets, indicative of investor equity underexposure, are top of mind.
CPI = Consumer Price 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. 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.