What happened last week
- Mega-cap tech underperformed the broad market and equal-weight indices as market breadth improved.
- The underperformance of mega-cap tech is likely short-term and technical in nature, but we are closely watching AI catalysts over the next two weeks.
- Fed Chair Powell’s Congressional testimony and U.S. payroll data failed to meaningfully change Fed policy expectations.
What we’re watching this week
- Quarterly earnings from two AI beneficiaries, Oracle and Adobe, could alter our view on market leadership.
- Tuesday’s U.S. CPI release is the biggest macro event this week; we also get Treasury auctions, retail sales, and consumer sentiment.
- The global inflation outlook was updated by revisions to EU CPI and preliminary headlines from Japan’s “Shunto” wage talks, an important catalyst for the Bank of Japan.
Horizon’s Investment Management Views
Last week’s modest gains for global stocks and all major slices of the fixed income market mask the turmoil and churn to trends in equity market leadership. International stocks led the way higher, while the mega-cap tech-heavy NASDAQ 100 declined around 1.5% on the week. Market breadth improved for the second straight week as the average S&P 500 stock outperformed the cap-weighted index by the most since last December. Then, as now, position squaring and risk management considerations likely played a role in the price action, but recent developments have our utmost focus in the coming days and weeks.
The two major macro catalysts last week – Fed Chair Powell’s Congressional testimony and the non-farm payrolls report in the U.S. – failed to alter the overall policy narrative. Labor market strength reinforces the Fed’s lack of urgency in cutting rates. In that light, the fall in bond yields last week came as a surprise to us; popular positioning in yield curve steepened trades and international developments from the European and Japanese central banks, as well as disappointing growth and fiscal figures from the Chinese authorities, may have played a role in the fall in U.S. yields.
AI investors were challenged last Friday as traders extrapolated Broadcom’s softer-than-expected semiconductor sales to NVIDIA, pushing the AI darling down ~11% from its intraday peak. The theme broadly underperformed on the week; for now, we do not view this price action as the start of a trend change. However, we are watching our signals, the fundamentals, and the price action for signs of a trend change. This week’s guidance from Oracle, and Adobe guidance for AI-driven business segments, is important for the AI theme, as is next week’s NVIDIA’s annual “GTC” conference starting on March 18th. Turning to macro, this week’s big catalyst is Tuesday’s U.S. CPI report. Other macro releases include U.S. Treasury auctions and retail sales, union wage negotiation updates from Japan, and EU CPI revisions.
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