What happened last week
- Last week’s price action was choppy and lacked a cogent narrative.
- 10-year U.S. Treasury yields rose by their most since last October on consumer and producer inflation upside surprises.
- Chinese equities led globally as cyclicals (energy and materials) led U.S. markets; interest-rate sensitive small caps underperformed, as did mega-cap tech.
What we’re watching this week
- The Fed’s March policy meeting takes center stage this week – we are monitoring updates to the dot plot and comments on the balance sheet unwind.
- A major catalyst for the AI theme is this week’s GTC conference by NVIDIA; NVIDIA CEO Jensen Huang will present today after the market close.
- Policy decisions from the Bank of Japan (BOJ), which may take rates out of negative territory, and the Chinese central bank will add to the global monetary policy backdrop.
Horizon’s Investment Management Views
Upside surprises to CPI and PPI pushed the 10-year U.S. Treasury up 23 bps, its largest weekly increase since last October. Global stocks fell in a choppy tape; domestic small caps underperformed due to their sensitivity to interest rates. However, the underperformance of the NASDAQ 100 and Japan points to an unwind of recent winners. Confounding the weekly narrative is the underperformance of the average S&P 500 stock versus the cap-weighted index amidst the leadership of two highly cyclical sectors, energy and materials. Optimism around China, which drove outperformance in the country’s equity markets, likely contributed to the outperformance of cyclicals. As a whole, however, last week’s price action lacked a neat narrative, with a lack of cogency likely exacerbated by Friday’s large option expiration.
Monetary policy is in focus this week as 15 central banks meet, including the BOJ on Tuesday and the Fed on Wednesday. It is a toss-up if Japan will exit negative rate policy this week. Still, we think investors should be less occupied with the timing of policy changes and more interested in the ultimate BOJ policy destination. At the Fed, we doubt this week’s meeting will change the “wait and see” policy stance we have been under for the past month. Their updated rate projections for this year, annual projections through 2027, and comments on balance sheet policy are top of mind for us.
The Fed’s March FOMC meeting is the most important macro event of the week. An updated summary of economic projections will include revisions to the Fed’s “dot plot” of interest rate projections; three cuts for this year are at risk (June is 50/50 in the market). We get three more CPIs to change the picture by then – don’t expect much to come from this week’s meeting. NVIDIA CEO Jensen Huang’s speech and presentation at the company’s annual GTC conference are essential for NVIDIA and the broader AI theme. As mentioned in the previous bullet, the BOJ meeting is also a major macro driver, with a policy decision from China’s PBOC also notable.
CPI = Consumer Price Index. PPI = Producer Price Index. PBOC = People’s Bank of China. 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. 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. 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. Nvidia GTC is a global artificial intelligence conference for developers that brings together developers, engineers, researchers, inventors, and IT professionals. 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.
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