What happened last week
- Action-packed and holiday-shortened trading week underscored by new all-time highs across major US equity indices.
- Economic data fueled the rally – upside retail sales surprise, rebounding consumer confidence, and continued labor market strength all contributed.
- Large-cap growth was back in vogue following a period of outperformance by last year’s laggards.
What we’re watching this week
- US economic releases this week include an initial print of 4Q GDP, business sentiment indices, and the Fed’s preferred inflation measure.
- Earnings – 25% of the S&P 500 by market cap to report 4Q earnings this week.
- Monitoring volatility in interest rate expectations, especially as it pertains to the timing of the first rate cut and total cuts priced into 2024.
Horizon’s Investment Management Views
Last week’s developments were bull fodder. Fresh all-time highs in the S&P 500 and the NASDAQ 100, an upside surprise to retail sales, the lowest level in jobless claims in over a year, and a jump in consumer confidence to its highest level since inflation began taking off in the summer of 2021. We have been and remain bullish; investor exposure remains low, economic bearishness is widespread, and market trends, especially toward tech and growth, are re-solidifying after a choppy period. Over the next few weeks, our focus is on two main things: (1) the bulk of companies in the S&P 500 will report earnings by the first week of February and (2) we are watching seasonal revisions to the economic data, especially to inflation, as highlighted by the Fed’s Waller last week.
Despite our positive outlook, we continue to be disappointed by weak market breadth and less than ideal international economic data. Small caps, as represented by the S&P 600, were flat last week and remain over 13% from their all time highs. Meanwhile, international stocks have not shared in this recent rally; the S&P 500 is up almost 5% so far this year on global ex-US equities. Weakness in Chinese data and a lack of clear international equity upside catalysts (outside of the corporate reforms and weak yen in Japan) continue to support our domestic equity overweight.
Markets entered the blackout period ahead of the Fed meeting at the end of the month expecting no change in policy. While we agree with that assessment, we look for a cut in March and continue to be surprised by the volatility in short-term interest rates. The 2-year U.S. Treasury yield rose 24 bps last week as almost 1.5 cuts were removed from this year’s pricing. This week’s data, including the first look at 4Q GDP, the Fed’s preferred inflation gauge, and PMI surveys, are likely to move rate expectations further. On the earnings front, about 25% of the S&P 500 reports, including the first of the “Magnificent 7”.
GDP = Gross Domestic Product. PMI = Purchasing Managers 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. The “Magnificent 7” Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla. Equities are represented by the S&P 500 Index which is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. Small Caps are represented by the S&P 600. It covers roughly the small-cap range of American stocks, using a capitalization-weighted index. The Nasdaq 100 is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. is the References to indices, or other measures of relative market performance over a specified period of time are provided for informational purposes only. 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. © 2024 Horizon Investments, LLC.
