What happened last week
- It was a recovery week for equities as yield moves continued to dictate price action.
- Labor market data was good news for inflation and helped market sentiment last week.
- Crude oil rallied above $85 per barrel, its highest level since last November.
What we’re watching this week
- It is a short trading week without any significant market catalysts.
- The highlights are ISM Services on Wednesday and a key Fed speaker on Thursday.
- Bond price action is in focus after a choppy and confusing few weeks.
Horizon’s Investment Management View
- After a few rocky August weeks of illiquid trading, equities found their footing last week and finished off the last gasp of summer trading firmly in the green. Falling interest rates were undoubtedly a tailwind as bond price action continued to set the tone for equity markets. Higher beta parts of the US market, including small caps and the tech-heavy NASDAQ 100, led within the US, while international stocks lagged slightly as the dollar edged toward the top end of this year’s trading range. Another notable mover was crude oil, which rallied over 7% last week and settled Friday at its highest level since last November.
- Last week’s releases of major labor market data painted a favorable picture for the Fed’s quest to stamp out inflation once and for all. Job growth is slowing, labor supply is increasing, and labor demand is cooling, all positives for a healthier labor market and a better balance to the inflation picture. However, long-term bond yields actually ended higher last week while shorter-term yields fell precipitously. This confusing price action shows that bond yields have two-way risk as fully staffed trading desks reengage after the summer lull.
- The shortened trading week ahead is devoid of major market catalysts. The likely highlights are Wednesday’s ISM Services report and a speech from John Williams on Thursday, an influential member of the Fed’s leadership. We will pay more attention to positioning and flow data as investors hunt for the next shift in market narrative; we wouldn’t be surprised to see continued volatility in equities, especially given that September is historically the worst month for stocks.
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