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Weekly Market Recap | 4/15/24

What happened last week

  • Equities sank as the 10-year Treasury yield surged above 4.5%.
  • Third consecutive upside CPI surprise pushed rate cuts out of market pricing, pushing up Treasury yields.
  • Elevated geopolitical risk in the Middle East also weighed on risk sentiment ahead of the weekend’s attack.

What we’re watching this week

  • Economic data: Retail sales, China 1Q GDP, and Federal Reserve messaging following hot CPI print are the highlights.
  • Earnings: Financials earnings continue with a few large healthcare companies also reporting throughout the week.
  • Geopolitics: Monitoring for signs of an Israeli response on Iranian soil – absent that, we think investors continue to price out escalation risks and focus instead on the Fed, inflation, and earnings.

Horizon’s Investment Management Views

Last week was a difficult one for stock and bond markets, made all the more complicated by the weekend’s events in the Middle East. Despite oil’s modest losses last week (likely positioning related), increasing geopolitical tensions were almost certainly behind some of the 1.5% fall in the S&P 500. The situation remains incredibly fluid, with focus turning to Israel’s response to the direct attack by Iran on Saturday. This uncertainty is likely to weigh on risk appetite, biasing stocks lower, the dollar higher, and yields lower in the near term.

But last week was not all about geopolitics – that old scourge, inflation, and the start of earnings season, also both played significant roles in the price action. The March CPI print in the U.S. surprised to the upside for the third time in a row with somewhat troubling internals. Rates markets rerated the number of rate cuts expected this year lower, pushing the 10-year to close above 4.5%. Importantly, Fed officials still think the next move is a cut – it is just a matter of timing. Last week’s inflation data also impacted equity internals as growth and mega-cap tech outperformed while small-caps were the standout laggard. On Friday, the official start to first quarter earnings saw some of the largest banks report. Price action reinforced our view that, in the context of two straight double digit quarters for the S&P 500, the bar to surprise positively has been raised appreciably.

With the highly telegraphed Iranian attack on Israel over and done with, tail risk could be reintroduced if signs emerge of an imminent Israeli military response on Iranian territory. Outside of geopolitics, there is much more for markets to digest: on the earnings front, we continue with banks (large banks and regionals) and some large healthcare companies as ~11% of the S&P 500 reports this week. Monday morning’s U.S. retail sales were stronger than expected, highlighting the resilience of the consumer; China’s GDP on Tuesday is also important for global growth dynamics.

CPI = Consumer Price Index. Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. The Federal Reserve System (FRS) is the central bank of the United States. The commentary in this report is not a complete analysis of every material fact with 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. 

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