What happened last week
- Nvidia, now a $2 trillion market-cap company, crushed lofty earnings expectations and sent equities to all-time highs.
- China’s equity performance picked up as investor sentiment grew increasingly bullish on market stabilization policy.
- Strong economic data continued to push back the timing of rate cuts, driving front-end yields higher.
What we’re watching this week
- Fed’s preferred inflation gauge, PCE, is expected to point to sub-3 % inflation; a surprise higher may prompt a short-term pullback in equities.
- Currency and rate markets will also process inflation data from Europe and Japan.
- We are cautiously monitoring for signs of a more durable rally in Chinese equities catalyzed by additional policy support for markets.
Horizon’s Investment Management Views
The S&P 500 and global stocks notched fresh all-time highs last week, largely driven by the earnings release of one single stock – Nvidia. The AI-darling’s results beat consensus estimates and reassured investors that the themes that have captivated market participants for over a year still have room to run. Those looking for a broadening out of the market were disappointed; small caps were down on the week and remained over 10% from their all-time highs. International equities, more than 10% from their all-time highs, fared better and generally matched domestic large caps last week as optimism over China’s stabilization policy improved the otherwise dour sentiment.
Meanwhile, in the bond market, ongoing pushback from Fed members, especially Governor Waller’s lack of concern around delaying an interest rate cut for a few more months, drove short-term yields higher. We think the just over three cuts now priced into 2024 will prove a floor for the time being, increasing the sensitivity of long-term rates to economic data. Resilient economic growth continues to underpin credit markets; high yield spreads fell again last week and are nearing the psychological 300 level.
As February comes to a close, economic data updates are on the calendar. The Fed’s preferred inflation gauge, the PCE deflator, is the week’s highlight; expectations are for a substantial increase in the month-over-month rate for the all-important core print. Inflation in Japan and Europe are also key monetary policy catalysts. The U.S. consumer is also in focus, as we will get two separate readings on consumer confidence during the week. Lastly, we continue to monitor the ongoing policy actions (and market reactions) in China ahead of the much anticipated Third Plenum party gathering in a few weeks.
PCE = Personal Consumption Expenditures. 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. 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. Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC.
