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Weekly Market Recap | June 12, 2023

What happened last week

  • It was a quiet week, with recent trends reversing in favor of year-to-date underperformers like small-caps and Chinese equities.
  • Technical factors drove price action last week, with macro and fundamental drivers lacking.
  • Front-end Treasury yields climbed as the odds of rate cuts in 2023 continued to decline.

What we’re watching this week

  • Huge market catalysts this week include a Fed meeting and Consumer Price Index (CPI) report for May.
  • Expect a “paus e”, not “end”, to Fed’s tightening cycle on Wednesday; outside chance of a hike if CPI comes in hot.
  • Watching for Foreign Exchange read-throughs from policy decisions and messaging out of the European Centra Bank and Bank of Japan.

Horizon’s Investment Management Views

  • Last week was largely undistinguished. In the intermission to the catalyst-heavy week ahead, the rally in domestic mega-cap tech cooled as year-to-date underperformers like domestic small-caps and China outperformed. We think that this equity rotation was more a result of technical factors than the start of a new trend; the AI theme was becoming extremely overbought heading into last week. In the fixed-income market, yields at the short-end of the Treasury curve rose ahead of this week’s Federal Reserve meeting as investors continued to chip away at prospects of rate cuts in 2023.
  • The catalyst-laden week ahead with the Federal Open Market Committee (FOMC) decision release on Wednesday in addition to an update to the Fed’s Summary of Economic Projections (SEP) and a likely “pause in rate increases.” A hike here, although unlikely, could be prompted by stronger than expected inflation print from Tuesday’s CPI report. Investors expect the Fed’s updated “dot plot” to indicate at least one more 25 bp hike this year.
  • A surprise rate hike could result in increased monetary policy uncertainty and financial market volatility. Such a decision would mark the first such departure from the market’s expectations in the current tightening cycle. Trend inflation is stabilizing around 5%, an undesirable outcome from the perspective of the Fed. Economists’ consensus estimates point to another month of elevated core inflation; a significant surprise in either direction will likely spur disparate market outcomes. A lower-than-expected reading is likely to produce risk-on-price action, whereas a much higher-than-expected reading will likely increase the odds of more hikes and pressure asset prices.

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. The S&P 500 Index represents the largest US companies. 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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