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Weekly Market Recap | 5/20/24

What happened last week

  • Price action: China led on a green week for global stocks, ratcheting higher as Chinese policy support continues to improve the outlook for that country and EM more broadly.
  • Data: A slightly cooler-than-expected CPI print did not materially change the “wait and see” Fed policy outlook.
  • Consumer: A miss on retail sales, in addition to other emergent fractures to consumer narrative, were tempered by Walmart’s strong earnings and guidance.

What we’re watching this week

  • Monetary Policy: Highlight is a speech from Waller, a key member of the Fed’s Board of Governors.
  • Earnings: Nvidia (NVDA) earnings are key for the AI theme; earnings from key retailers will add to our view of the consumer..
  • Internationals: Rally in Chinese equities may need additional fuel; monitoring China’s “reunification” messaging around Taiwan’s Presidential Inauguration.

Horizon’s Investment Management Views

Global stocks rallied for a fourth straight week and closed Friday at fresh all-time highs. While the round numbers for U.S. indices garner much media attention (Dow Jones Industrial Average above 40,000 and S&P 500 above 5,300), equity leadership has seen profound shifts this quarter. Domestic mega-cap tech dominance has taken a backseat to international stocks, especially emerging markets (EM), and Chinese equities. Much of this recent EM rally is related to policy support by the Chinese government against extreme negative sentiment and underweight investor positioning. Commodity prices are also on the rise, with copper futures up ~8% last week. Not all of this is China, however; some of this rally in industrial metals prices is related to domestic data center demand and the importance of power infrastructure as AI use deepens. NVDA’s earnings and guidance this week are important data points in that process and something that we will be monitoring closely for signs that the market’s preferred expression of the AI theme is changing.

Last week’s macro releases were slightly weak, but in the end, a downside miss to retail sales and a slightly cool April inflation report did not meaningfully change the patient stance of the Fed. Walmart’s upside earnings report last week arrested growing investor negativity on the consumer. There was one pitfall in the release from the country’s largest retailer, however, increased foot traffic from consumers “trading down” to control costs and keep their budgets in check was the main source of the beat. Staying on this thread, other retailers, including Target, TJ Maxx, Lowe’s, and Ross, are reporting earnings this week. We will use these reports to inform our outlook for the consumer, a key pillar of U.S. economic resilience.

Outside of the earnings releases mentioned above, this week is light for market catalysts. The Fed’s unofficial policy leader, Federal Reserve Board Governor Christopher Waller, speaks on Tuesday ahead of the Fed blackout period. Overseas, reports of aggressive support for Chinese real estate will need tangible action to continue the recent rally.

CPI = Consumer Price Index. 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 Inde x, which is a market- capitalization-weighted index of the 500 largest U.S. publicly traded companies. The Dow Jones Industrial Average is a stock market index that tracks the daily movements of 30 publicly-traded companies in the United States. 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.

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