What happened last week
Pressure building on the disinflation narrative as global bond yields surge and commodities continue their rally
Domestic equities were also lower despite the better-than-expected Consumer Product Index (CPI) release
China’s low inflation print and much lower-than-expected loan growth dragged emerging markets equities lower
What we’re watching this week
Consumer spending in focus with US retail sales and earnings releases from large retailers
Outside the U.S., we are monitoring China activity releases and developed market second quarter Gross Domestic Product (GDP) prints
Expect continued choppy conditions in a week with limited market participation due to August holidays
Horizon’s Investment Management Views
The synchronized stock and bond sell-off continued in choppy, illiquid trading last week. Government bond yields, once again the main driver of price action, rose across the yield curve despite a better-than-expected CPI release in the US (although the headline ticked up due to base effects) and very weak lending and inflation data out of China. Recent cross-asset price action continues to challenge the dominant market narrative; light summer trading may be to blame, but such conditions often dictate new trends and are top of mind for us.
The first two weeks of August have erased all of July’s gains for global stocks, and we believe the short-term risks skew lower, not higher. Intra-equity trends remain aimless and volatile; both year-to-date winners, the mega-cap heavy NASDAQ 100, and the laggards, domestic small caps1, led domestic declines last week. Internationally, China dragged emerging markets2 lower as short-term market players discounted incoming data and policy announcements. More broadly, dollar strength continues to weigh on non-US shares, especially emerging markets.
This week should be quiet – earnings season is all but over, and the next major macro event is the central banking conference in Jackson Hole in about two weeks. This week’s catalysts are mostly overseas; highlights include China’s July activity data release and Japanese and European second-quarter GDP prints. Domestically, we are watching retail sales and earnings reports from major retailers for a pulse on consumer spending.
1The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. 2The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries. Global stocks are represented by the MSCI ACWI Index , which is a stock index designed to track broad global equity-market performance. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded companies listed on the Nasdaq stock exchange. 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. 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. References to indices, or other measures of relative market performance over a specified period of time are provided for informational purposes only. 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.