What happened last week
- Stocks climbed as the Fed and European Central Bank (ECB) raised rates to 22-year highs
- Continued string of strong US data pushed back recessionary timelines once again
- Mega-cap tech affirmed its year-to-date dominance with a strong showing in Q2 earnings
What we’re watching this week
- The last major week of Q2 earnings is expected to continue the trend of majority upside surprises
- Key labor market releases and an updated Fed lending standards survey are highlights of the domestic economic calendar
- Japanese bond market price action following the Bank of Japan’s (BOJ) hawkish surprise and news flow out of China for signs of tangible fiscal easing are top of mind internationally
Horizon’s Investment Management Views
- Stock prices and bond yields rose in an action-packed week full of macro and micro catalysts. Dovish press conferences from both the Fed and ECB supported risk sentiment despite both central banks hiking rates to their highest levels since 2001. Investors got a further boost from a “goldilocks” mix of economic data out of the US, including stronger-than-expected nominal GDP growth, lower inflation, and robust consumer confidence. The BOJ upset the bullish string of macro events at their Friday meeting as they surprised hawkishly by allowing long-term yields to move higher in their heavily manipulated bond market; global long-term sovereign bond yields rose on the news.
- Domestic Q2 earnings also supported the rally as most companies outperformed analyst expectations. Strong mega-cap tech earnings led to continued large-cap growth and the NASDAQ 100 dominance over dividends and value. With the abundance of positive news, the slowdown of nominal Q2 GDP (which drives corporate revenues) was lost in the deluge. We are watching if that GDP slowdown makes it into guidance for the back half of the year.
- The upcoming week promises to be busy as US investors absorb the last significant week of earnings, the July jobs report, and updates on domestic bank lending standards. Outside the US, there are two primary areas of focus. Firstly, we are watching for where Japanese Government Bond yields settle following Japan’s shift towards a more restrictive policy following over a decade of extremely loose monetary policy. Secondly, the recent rally in Chinese stocks has been driven by hopes of a major policy pivot to support their flagging economy; we are looking to delineate between tangible policy and rhetoric.
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