What happened last week
- Equities fell for the third consecutive week as rates continued to climb higher.
- Strong retail sales print supported the trend of continued economic resilience within the U.S. and contributed to the move higher in rates.
- The tail end of the week saw outsized underperformance of the AI theme ahead of this weeks’ deluge of earnings data.
What we’re watching this week
- Earnings: A huge week ahead with about 40% of the S&P 500 by market cap reporting earnings.
- Macro: Core PCE, a BOJ meeting, and Treasury auctions are the highlights. 1Q GDP on Thursday is old news.
- Geopolitics: Investors will likely continue to monitor Middle East headlines as tail risk remains elevated following Israel’s response to Iran.
Horizon’s Investment Management Views
The second quarter is not off to a good start; stocks and bonds have been negative each of the three weeks of April. Uncertainty in the Middle East weighed on sentiment once again, with the S&P 500’s break of its key 50 day moving average trend line last Monday likely adding to the selling pressure. The week closed with a heavy dose of investor de-risking ahead of a key earnings week for U.S. stocks. All but one of the Magnificent 7 underperformed the S&P 500 and contributed to the NASDAQ 100’s worst week since November 2022.
The upside surprise to Retail Sales to start the week, as well as hawkish comments from the Fed, resulted in fewer than two rate cuts priced into 2024 by the end of the week. Our framework has held that the level of rates matters more for market leadership rather than the overall level of the market. Last week’s material underperformance of large-cap growth stocks, as well as the strength in international markets, domestic dividends, and other rate-sensitive sectors, challenged that framework. We view last week’s price action as technically driven in nature; that said, we currently think that last week’s underperformance of the AI theme is more likely than not a buying opportunity rather than a chance to pivot into a new theme. With the onslaught of fundamental data to come, the market’s reaction to earnings releases this week will provide crucial data to test that view.
Macro will take a back seat to fundamental data this week with ~40% of the S&P 500 reporting 1Q ‘24 earnings, including updates from META, GOOG, and MSFT. On the geopolitical front, markets will continue to monitor, albeit to a lesser extent, Middle East developments following Israel’s de-escalatory response to the previous weeks’ strike from Iran. Finally, there will be some macro data for investors to parse – Core PCE on Friday and the BOJ meeting, as well as U.S. Treasury auctions, are the highlights.
The Bank of Japan, or BOJ, is Japan’s central bank. GDP is short for gross domestic product. The Magnificent 7 consists of Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla. The Core Personal Consumption Expenditure (PCE) Price Index measures the changes in the price of goods and services purchased by consumers for the purpose of consumption, excluding food and energy.
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. 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. 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.
© 2024 Horizon Investments, LLC.
