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.
Disclosure
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.
