What happened last week
- Holiday-shortened week ends 1Q 2024 – U.S. equities (S&P 500) rose over 10%, a strong (85 percentile since 1993) historical quarterly return.
- Quarter-end rebalancing likely contributed to the outperformance of year-to-date laggards (e.g., small caps).
- Monetary policy signaling from the Fed Chair and economic data did not meaningfully change interest rate expectations for 2024.
What we’re watching this week
- Economic data: Friday’s non-farm payrolls report is expected to show another ~205k jobs added in March, with wages ticking modestly higher relative to February.
- Price action: Monitoring for signs of a more durable trend change in favor of year-to-date laggards.
- Fed: Speeches from Powell and Williams (NY Fed President) are the highlights.
Horizon’s Investment Management Views
Rotation was the story last week as we capped off a very positive quarter for equity markets with a relatively lackluster four days of trading. Small-caps, a significant laggard year-to-date, were the biggest beneficiaries, while markets saw little sponsorship. Zooming out, market breadth has temporarily broadened out from last year’s incredibly narrow price action. However, currently, we don’t see durable support for a “rising tide that lifts all boats” trade that would see the rest of the global equity market outperform the large-cap growth, quality, and AI-adjacent themes. First quarter earnings season will be an important test to see how investors react to the narrowing of the earnings tailwinds that software and semiconductor firms have enjoyed for the past year.
The economic data and speeches from Fed Chair J. Powell and Governor Waller didn’t change the picture for monetary policy – we are waiting for more data, but cuts are still coming this year. In terms of the impact to risk assets, the data was on balance, marginally positive. For now, good data is good for markets, until and unless we must start contemplating additional rate hikes. Back to monetary policy – interest rate expectations for 2024 remained unchanged on the week. At this point in the rate cycle, we think how the economic data evolves is much more important than the forecasts and the countless commentary of the members of the FOMC.
Looking to this week, Friday’s nonfarm payrolls report will take center stage. Continued labor market resilience coupled with modest (but not supercharged) wage gains would likely support risk assets in the short term. We are monitoring whether last week’s rotation into small caps hold or prove, as we expect, fleeting; we think quarter end rebalancing, in the absence of more tangible (and durable) catalysts, was the primary driver of last weeks’ rotation into year-to-date losers. Lastly, we turn to monetary policy – Powell and Williams (head of NY Fed) are the highlights.
Nonfarm payrolls are a monthly statistic representing how many people are employed in the US, in manufacturing, construction, and goods companies. They can also be known as non-farms, or NFP. FOMC= Federal Open Market Committee The commentary in this report is not a complete analysis of every material fact in respect to any company, industry or security.
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