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Weekly Market Recap | 5/28/24

What happened last week

  • Semis: NVDA’s “beat and raise” earnings report reignited the AI trade and propelled mega-cap tech to fresh all-time highs.
  • Hawkish Fedspeak: Governor Waller strongly pushed back on rate cuts this summer, driving 2-year yields close to 5% once again.
  • Lack of Breadth: Last week’s action was narrowly focused on the mega-cap tech trade; small caps and internationals were down on the week.

What we’re watching this week

  • U.S. Inflation: Friday’s PCE report (the Fed’s preferred gauge) likely won’t change the near-term on hold Fed outlook.
  • Global Inflation: Eurozone and Tokyo CPI reports are important for the dollar and the level of global yields.
  • U.S. Data: Revised 1Q GDP data and personal income and spending for April round out the U.S. economic calendar.

Horizon’s Investment Management Views

Last week was all about earnings from the chip giant Nvidia (NVDA), and the firm’s beat and guidance raise was enough to reignite the AI trade and drag the S&P 500 up less than 0.1% to its fifth straight week of gains. Under the hood, last week’s action highlighted just how narrow the market has become; the average S&P 500 stock was off over 1%, NVDA’s gains contributed almost 80 bps for the S&P 500 Index’s performance, and only 2 of 11 sectors finished in the green. The lack of breadth was visible outside the S&P 500 as well, with international markets and domestic small caps lagging sharply. Heading into the holiday-shortened final trading week of May, we expect continued back-and-forth price action in equity markets as trading desks slip into summer mode early.

While the equity market focused on semiconductors, fixed-income investors faced continued hawkish rumblings from Fed members and upside surprises to business activity surveys in the U.S. and Europe. Fed Governor Waller, an important guidepost for monetary policy, all but ruled out a rate cut this summer, lessening the potential impact from this week’s PCE report. Last week’s news on the U.S. consumer was marginally positive as well, although once again driven by trading down behavior in search of value amidst high prices. Yields rose across the curve last week, led by the front end, while credit spreads were roughly flat. With the 2-year yield flirting with the 5% level once again and the European Central Bank set to cut rates in a few weeks, we are watching the dollar for direction on equities and commodities.

This short week is another light one for market catalysts. U.S. economic data is the main focus, with the Fed’s preferred inflation measure on Friday and a revised look at 1Q GDP on Thursday. Inflation readings in Europe and Japan will add to the outlook for global monetary policy. Equity price action is also an area of focus for us after last week’s extremely narrow trading.

The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a representative basket of consumer goods and services. Gross domestic product (GDP) is the standard measure of the value added created through the production of goods and services in a country during a certain period. Internationals is represented by a broad-based index of international stocks. Small caps are represented by common indices of U.S. small caps. Mega-cap tech is represented by the largest tech and tech-adjacent companies in the U.S.

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. Small Caps and Internationals are represented here by broad based indices; contact us for more information 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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