What happened last week
- The S&P 500 snaps its 9-week winning streak to end Friday less than 3% from all-time highs.
- Rates moved higher across the Treasury yield curve, weighing on small-caps; this highly levered segment was one of the leaders of the 4Q ‘23 surge in equities.
- The signal from last week’s price action was potentially confounded by light volumes, idiosyncratic companyspecific developments, and year-end flows.
What we’re watching this week
- U.S. CPI, in addition to inflation reports from other major economies, is a main macro catalyst this week.
- The start of earnings season on Friday will provide valuable company-specific fundamental data to the outlook..
- Given last week’s move in rates, Treasury auctions will be closely watched; the presidential election in Taiwan is also in focus.
Horizon’s Investment Management Views
Last week’s shortened trading week was not the one the bulls were hoping for – the S&P 500 declined about 1.5% to snap its 9-week winning streak, while dreams of the rally broadening out were dashed by small-caps’ decline of about 3.6%. Bond markets also reversed their positive trend last week, pushing up yields across the curve. We are not concerned by the shaky start to the year, especially given last week’s low volumes and light investor engagement. Other technical factors, such as two separate analyst downgrades of AAPL, a flood of investment grade bond issuance, and potential tax or window-dressing related flows, likely played a role in last week’s action as well. Looking forward to the next few months, we view this consolidation as a healthy development.
Our optimistic take on last week’s price action was supported by Friday’s strong and healthy U.S. jobs report. The labor market remains key to our outlook, and December’s report shows continued fuel for consumer spending, but in a way that does not stoke inflation concerns as in 2022 and early 2023. However, last week’s steady-as-she-goes jobs release removed almost one full Fed cut from the curve this year. We still view the March meeting as the first ease in policy and are looking through the noise – policy headwinds turning to tailwinds is an important takeaway.
This week is a big one, and hopefully, one that will be met with full and engaged trading desks. Friday is the official start of earnings season, with many of the mega banks reporting. Inflation is the theme of the macro calendar across the globe – the US CPI report on Thursday is a highlight, but we will also see updates from major economies in Asia throughout the week. Given the volatility in rates and the deluge of corporate supply last week, this week’s Treasury auctions (3 year, 10 year, and 30 year) will be closely scrutinized. Lastly, presidential elections in Taiwan may have important geopolitical implications for the Sino-US relationship.
CPI= Consumer Price Index, AAPL= AppleThe 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 arenot 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 thepurchase or sale of any security or device. Before investing, an investor should consider his or her investment goals and riskcomfort levels and consult withhis or her investment adviser and tax professional. Equities are represented by the S&P 500 Index which is a market-capitalization-weighted index of the 500largest U.S. publicly traded companies. Small-caps are represented by the S&P 600, a stock market index that seeks to measure the small-cap segment ofthe U.S. equity market. References to indices, or other measures of relative market performance over a specified period of timeare provided for informationalpurposes only. Reference to an index does not imply that any account will achieve returns, volatility or other results similarto that index. The compositionof 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. Thiscommentary 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 assuch. Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC. © 2024 Horizon Investments,LLC.
