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Weekly Market Recap | 3/11/24

What happened last week

  • Mega-cap tech underperformed the broad market and equal-weight indices as market breadth improved.
  • The underperformance of mega-cap tech is likely short-term and technical in nature, but we are closely watching AI catalysts over the next two weeks.
  • Fed Chair Powell’s Congressional testimony and U.S. payroll data failed to meaningfully change Fed policy expectations.

What we’re watching this week

  • Quarterly earnings from two AI beneficiaries, Oracle and Adobe, could alter our view on market leadership.
  • Tuesday’s U.S. CPI release is the biggest macro event this week; we also get Treasury auctions, retail sales, and consumer sentiment.
  • The global inflation outlook was updated by revisions to EU CPI and preliminary headlines from Japan’s “Shunto” wage talks, an important catalyst for the Bank of Japan.

Horizon’s Investment Management Views

Last week’s modest gains for global stocks and all major slices of the fixed income market mask the turmoil and churn to trends in equity market leadership. International stocks led the way higher, while the mega-cap tech-heavy NASDAQ 100 declined around 1.5% on the week. Market breadth improved for the second straight week as the average S&P 500 stock outperformed the cap-weighted index by the most since last December. Then, as now, position squaring and risk management considerations likely played a role in the price action, but recent developments have our utmost focus in the coming days and weeks.

The two major macro catalysts last week – Fed Chair Powell’s Congressional testimony and the non-farm payrolls report in the U.S. – failed to alter the overall policy narrative. Labor market strength reinforces the Fed’s lack of urgency in cutting rates. In that light, the fall in bond yields last week came as a surprise to us; popular positioning in yield curve steepened trades and international developments from the European and Japanese central banks, as well as disappointing growth and fiscal figures from the Chinese authorities, may have played a role in the fall in U.S. yields.

AI investors were challenged last Friday as traders extrapolated Broadcom’s softer-than-expected semiconductor sales to NVIDIA, pushing the AI darling down ~11% from its intraday peak. The theme broadly underperformed on the week; for now, we do not view this price action as the start of a trend change. However, we are watching our signals, the fundamentals, and the price action for signs of a trend change. This week’s guidance from Oracle, and Adobe guidance for AI-driven business segments, is important for the AI theme, as is next week’s NVIDIA’s annual “GTC” conference starting on March 18th. Turning to macro, this week’s big catalyst is Tuesday’s U.S. CPI report. Other macro releases include U.S. Treasury auctions and retail sales, union wage negotiation updates from Japan, and EU CPI revisions.

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. 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. Nvidia GTC is a global artificial intelligence conference for developers that brings together developers, engineers, researchers, inventors, and IT professionals. 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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