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Weekly Market Recap | 6/03/24

What happened last week

  • Revenge of the Meme Traders: Small-caps outperformed large-caps on resurgent trading in “meme-stocks.”
  • Slightly Softer U.S. Data: 1Q U.S. GDP was revised lower last week, cooling but not entirely halting the trend towards higher Treasury yields.
  • AI Theme: Reports from some tech companies led to significant underperformance in the sector; picks and shovels remain our preferred expression of this view.

What we’re watching this week

  • U.S. Labor Market Data: Important implications for the U.S. consumer from May’s jobs report; investor views on the consumer have deteriorated recently.
  • Other Economic Data: Global PMIs (including U.S. PMIs) and emerging market inflation reports.
  • Global Monetary Policy: Policy announcements from the European Central Bank (ECB) and Bank of Canada.

Horizon’s Investment Management Views

As expected, last week’s holiday-shortened trading week was light on the catalyst front. However, there were a few surprises from the retail crowd: price action in smaller-cap U.S. equities was driven by surging “meme-stocks,” driving in small-cap indices relative to large-cap ones. On the data front, a downward revision in 1Q U.S. GDP cooled but did not entirely extinguish the trend towards higher rates, with the 10-year U.S. Treasury yield ending the week just a few basis points higher.

A trickle of tech earnings and guidance also had an outsize impact over the last week, driving substantial underperformance in the technology sector relative to the broader U.S. equity market. Companies like Dell, Marvell Technologies, and Salesforce (among others) valued as beneficiaries of AI adoption and integration were hammered with double-digit percent losses last week following softer-than-expected earnings and guidance. However, the AI company, Nvidia, outperformed all major indices – this comports with our view that the beneficiaries of the AI theme continue to be the “picks and shovels” type companies, with Nvidia the most exposed to the AI infrastructure buildout.

This week, the primary U.S. catalyst comes from the all-important labor market. May’s nonfarm payrolls and accompanying wage releases on Friday will have important read-throughs for the U.S. consumer. Outside the U.S., a hotter-than-expected inflation reading out of the Eurozone may have implications for the ECB’s upcoming policy meeting this week, potentially impacting currency and rates markets. Additionally, global PMI readings could confirm or reject the recent rebound in economic activity, as proxied by corporate sentiment, across the manufacturing and services sectors. In emerging markets, investors will also closely watch consumer inflation figures’ updates.

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. Purchasing Managers’ Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing. 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 are represented here by a broad-based small cap index; 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.

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