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Weekly Market Recap | 2/12/24

What happened last week

  • A mega-cap-led rally lifted the S&P 500 above 5,000, a new all-time high. 
  • Interest rates continued to drift higher as the yield curve steepened, supporting higher-quality large caps relative to small caps and cyclicals. 
  • International stocks continued to underperform, weighed down by dollar strength, although Chinese equities stood out on policy-driven outperformance.

What we’re watching this week

  • Potential short-term reversion catalysts include January inflation and retail sales data. 
  • Other catalysts include renewed concerns stemming from regional banks and potential geopolitical developments out of the Middle East. 
  • Lastly, the Lunar New Year holiday will provide a 1-week pause for any policy developments out of China.

Horizon’s Investment Management Views

The S&P 500 closed above the 5,000 mark on Friday after last week’s gains augmented the strong start to 2024. With domestic large-caps on such a well-defined up-trend off their October lows (the S&P 500 is up 14 of the last 15 weeks), market momentum took over in a week devoid of catalysts. Our outlook on equities is still positive, especially large-cap growth and AI-related names. But the narrowness of this rally, increasing investor market exposure, and signs of short-term overextension in this sharp move have us on the lookout for a pullback in the coming weeks.  

The move higher in interest rates and the steeper yield curve have not weighed down equities. Economic resilience has largely driven the 10-year yield up 30 bps this year due to a pushback in the expected timing of Fed easing. But we’d caution against concluding that rates don’t matter at all; we view higher interest rates as a big driver of the poor breadth and underperformance of small caps this year and the performance of higher quality, larger cap names with strong secular earnings trends. The rise in interest rates has supported the dollar, a headwind to international equities (especially emerging markets). However, last week, emerging markets benefited from further policy support by Chinese authorities ahead of their Lunar New Year holiday.

Potential catalysts for a correction in recent trends include this week’s CPI and retail sales reports and earnings from the queen of the AI ball – Nvidia – on February 21. Other worries that are being overshadowed by the S&P 500’s new daily records, like weakness in some regional banks and a potential escalation in the Middle East, are also on our radar. Lastly, we are closely following the news flow in China for signs of a durable change in policy that could turn the tide for one of the worst-performing major markets over the past two years.

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. Mega-Caps are companies with market caps over $200 billion. 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. 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.

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