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Weekly Market Recap | 9/25/23

What happened last week

  • A more hawkish than expected Fed meeting saw higher interest rate projections in 2024 and beyond.
  • The long end of the Treasury yield curve surged to post financial crisis highs after the Fed meeting; negative technicals played a role as well.
  • The rates repricing also drove weakness in equity and credit markets.

What we’re watching this week

  • Data on the consumer are in focus this week, including spending, income, and sentiment measures.
  • One of the Fed’s inflation gauges, PCE1, and inflation readings in Europe and Japan are released this week as well.
  • Technical factors, such as investor rebalancing flows, could drive price action as we approach quarter end.

Horizon’s Investment Management Views

  • The gravitational pull of the black hole that higher Treasury yields have recently become proved too much for equities last week as the S&P 500 Index notched its biggest weekly decline since the regional banking woes in March. A more hawkish than expected Fed meeting and continued illiquidity and poor technicals in the bond market drove the 10-year Treasury yield to new cycle highs above 4.5%. Other areas of the fixed-income market, including high-yield credit and mortgages, displayed weakness as well. We are closely watching market conditions, especially with a looming government shutdown and other potential negative catalysts like a prolonged UAW strike and the restart of student loan payments, that could temporarily disrupt our more optimistic outlook on markets.
  • Broad-based declines across equity and fixed-income markets meant there were few places to hide last week. However, the forward-looking PMI reports and twelve central bank meetings highlighted strong divergences in the growth and policy outlooks across the globe; we expect market volatility to reveal attractive opportunities in the coming weeks. We are holding some lower volatility equity exposure and more liquidity in our fixed-income portfolio as potential funding sources in anticipation of these events.
  • This week is the final one of the third quarter – watch out for potential rebalancing flows as investors adjust their portfolios. Last week’s price action was driven in part by investors taking the Fed’s forecast, which pointed to higher for longer rates and essentially no weakness in the labor market, at face value. At this point in the cycle, we believe that focusing on the data is much more important than focusing on Fed communication.

1PCE – Personal Consumption Expenditures, a measure of the spending on goods and services in the United States

The commentary in this report is not a complete analysis of every material fact in 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. The S&P 500 or Standard & Poor’s 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.  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. Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC.

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