What happened last week
- Stocks sold off with small caps, value, and internationals leading losses as narrow market leadership continued
- Monetary policy developments were negative and likely contributed to the anti-cyclical price action
- An armed mutiny revitalized geopolitical risk emanating out of Russia
What we’re watching this week
- Continuing to monitor for revisionary price action due to rebalancing activity into quarter end
- Banking capital requirements and signs of weakness emanating from the Fed’s annual U.S. banking sector stress tests
- International inflation data out of Europe and Japan in addition to the Fed’s preferred gauge of price pressures domestically
Horizon’s Investment Management Views
- Last week’s move lower in stocks didn’t come as a surprise to us – as we relayed in our last note, we had viewed the near-term set up for equities as bearish. What did surprise us, however, was the leadership – mega caps and domestic growth led, whereas small caps, value, and international markets lagged. Catalysts for this distinctly anti-cyclical price action were light, although monetary policy developments may have marginally increased the likelihood of a recession: China cut rates by less than expected, providing less support to not only their economy but also the global economy, Powell’s testimony to Congress was hawkish, and central banks in the UK and Norway hiked by more than expected.
- Over the weekend, confusing and rapid-fire news out of Russia forced geopolitical risk back into investors’ minds. The Wagner Group, a global mercenary army pursuing Moscow’s interests abroad, including inside of Ukraine, turned on the Kremlin and marched within shooting distance of Moscow. A quickly negotiated settlement preserved Putin’s hold on power, at least for now. The situation remains highly fluid, but what is certain is that investors can no longer entirely ignore the geopolitical risks emanating from Russia.
- Despite the continuation of the mega-cap trend last week, we are sticking to our view that investors are likely to rebalance into the laggards in the coming weeks. Heading into quarter end on Friday, we will be watching the price action closely, as well as the Fed’s annual banking stress test results on Wednesday and inflation prints in Europe, Tokyo, and the Fed’s preferred gauge toward the back of the week.
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