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Weekly Market Recap | 6/24/24

What happened last week

  • AI vs. the Rest: Year-to-date equity trends reversed last week as small-caps led mega-cap tech; quarter/month-end and specific product rebalancing flows likely contributed to the atypical price action.
  • Softening U.S. Data: Weaker retail sales added another tally to the string of softening consumer data.
  • European Woes: Equity and fixed-income markets continue to price in increased risk, stemming from a pivot towards more extreme politics in France.

What we’re watching this week

  • Politics: Thursday’s presidential debate could weigh on interest rates in the event of a decisive performance by either candidate.
  • End of Quarter Flows: Potential rebalancing out of the recent outperformers (growth, China, and broad equities) into the laggards (small caps, dividends, and bonds).
  • Monetary Policy: The Fed’s preferred inflation gauge, CPI in Tokyo, and various EM central banks round out the week.

Horizon’s Investment Management Views

The narrow market leadership that has been the story of 2024 (and much of ‘23) took a pause last week. Both small caps and the average S&P 500 stock outperformed the mega-cap tech-heavy NASDAQ 100, while eight of the eleven GICS sectors bested the market-cap index. For context, only two sectors have managed to beat the index this year. There was little in the way of market-relevant news behind last week’s price action; investor rebalancing flows after such a strong run are likely the culprit in our view. We wouldn’t be surprised if this trend continues this week as the second quarter comes to a close.

Three macro developments were interesting to us outside of the price action in equities. In the U.S., a weaker-than-expected retail sales print was not met with lower bond yields, indicating that fixed-income markets may have already discounted the recent slow patch in growth. In Europe, both fixed income and equity risk ticked higher ahead of the first round of the French elections on June 30th, a sign of investor nervousness. And in China, year-to-date lows for their currency raise the odds that policymakers will turn to that old stalwart, exports, to stabilize GDP growth at their upcoming plenum meeting in July.

This week, we are closely monitoring a few important catalysts. The Fed’s preferred inflation gauge and consumer confidence are top of mind in U.S. data. The first, and possibly the only, Presidential debate on Thursday may impact markets. We believe politics matters more for rates than equities, at least right now; a decisive showing from either side raises the odds of a sweep, pushing long-end yields meaningfully higher as investors price in a higher probability of sweeping fiscal changes. Outside the U.S., inflation data from Japan and several emerging market (EM) central bank policy meetings provide global context to the policy backdrop.

Emerging markets (EM)  is a term that refers to an economy that experiences considerable economic growth and possesses some, but not all, characteristics of a developed economy. Global Industry Classification Standard (GICS) is a system for assigning companies to a specific economic sector and industry group that best defines its business operations.  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 Index is a stock index of the 100 largest companies by modified market capitalization trading on Nasdaq exchanges. 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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