What happened last week
- Market Recovery: S&P rallies to within 2% of its all-time high.
- Healthy Data: Strong retail sales, good guidance from Walmart, and a consensus CPI report supported the market recovery.
- Goldilocks?: CPI report indicated normalizing inflation as retail sales and corporate guidance supported stabilizing growth; we may still be on track for the “soft landing.”
What we’re watching this week
- Monetary Policy: Fed Chair Powell speaks at Jackson Hole on Friday morning.
- Consumer Earnings: Target, Lowe’s, TJ Maxx, Ross, and Dollar Tree will provide additional insight into consumer health.
- Politics: The Democratic Convention is unlikely to make much news, but markets are paying attention given the odds between Trump and Harris.
Horizon’s Investment Management Views
August has been an incredibly volatile month for markets, but after last week’s ~4% rally in the S&P 500, the benchmark U.S. index closed within 2% of its all-time highs last Friday. More casual market observers could be forgiven for wondering what all the fuss was about. Our view remains that the price action over the last few weeks was more of a market event driven by crowded investor positioning during a less liquid trading season rather than a change in the fundamentals (corporate and economic). Adding to this correction’s speed is data supporting the feeling that the economy is not nose-diving off a cliff into a recession. Last week brought a benign CPI release, a very strong retail sales figure, better-than-expected earnings and guidance from Walmart, and another sharp fall in jobless claims.
Outside of the better-than-expected data, monetary developments have supported investor sentiment over the last few weeks. While commentators have been lambasting the Fed’s inaction, calm, reassuring messaging from Fed members has tamped down the panic that characterized rates markets early this month. Other central banks have continued with their rate-cutting plans during this time, while the Bank of Japan, a focus of investor angst after their hawkish commentary at their last meeting, walked back some of their more aggressive plans around policy normalization.
Ahead of Powell’s speech at Jackson Hole on Friday, markets are back to favoring a 25 basis point cut in September. We will pay close attention to his words (and those of the other central bankers and researchers in attendance). Still, at a high level, the fact that the Fed will likely cut interest rates soon is the most important thing for markets. Data between now and then is left to determine the magnitude. The Democratic National Convention kicks off today in Chicago, and more consumer insights from the big box retailers are expected this week.
The Consumer Price Index (CPI) measures the average change in prices paid by consumers over a period of time for a basket of goods and services. The commentary in this report is not a complete analysis of every material fact with 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. 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. 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.
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