What happened last week
Negative bond market developments likely drove the sell-off in equities
Jobs report pointed to easing wage growth, indicative of progress towards 2% inflation
Apple Inc. earnings disappointed, bucking the trend of mega-cap tech earnings outperformance in Q2
What we’re watching this week
- CPI1 data is a major release this week; more confirmation of disinflation would be positive for market sentiment
- Focusing on bond price action as the US Treasury auctions 3-year, 10-year, and 30-year debt
- Geopolitical developments on the commodities (grain, oil) front that could sour the progress on inflation
Horizon’s Investment Management Views
The government bond market was the focus last week as a confluence of negative surprises, including higher-than-expected Treasury issuance, a rating downgrade, and two bond-buying operations from the Bank of Japan led to a violent surge higher in Treasury yields. The 30-year yield approached levels last seen in November 2022, while the 10-year real (inflation-adjusted) yield touched its highest level since 2009. As we often say, “If you can’t price a Treasury, don’t ask us to price a stock.” True to form, less liquid parts of the bond market were under even more selling pressure last week, while global stocks had their most significant down week since the regional banking issues erupted in mid-March.
Friday’s jobs report partially reduced pressure on yields, a silver lining in an otherwise turbulent week. Wage growth continues to moderate, a welcome development for the Fed’s fight against inflation, which is still not over in their eyes despite the favorable June inflation print. The focus for this week on the macro front is Thursday’s update on inflation; confirmation of the June downtrend would be good news for investors in stocks and bonds alike.
Recent improvements in breadth continued as the NASDAQ 100 led declines in the US; disappointing earnings from Apple, its largest holding, likely played a role. Further profit-taking may be in store in the near future. But what is bad for the top of the market can be suitable for other areas, as small caps and dividend stocks outperformed last week. Also notable was the domestic energy sector, which ended the week in the green amidst a sea of red; crude is up almost 22% from its mid-June lows.
Disclosure
1Consumer Price 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. 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. 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.
