What happened last week
- Earnings: Strong earnings from AI-exposed mega-cap technology supported a modest rally in US equities.
- Jobs report: The labor market remains strong while an upside surprise to wage growth continues to challenge rate cut timing expectations.
- Fed: Powell delivers dovish press conference, supporting risk assets; 10-year yields 15bps lower powered core bonds to post their best weekly rally since the Fed’s December dovish pivot.
What we’re watching this week
- US Data: The highlights are surveys on bank lending and the consumer.
- International Data: Chinese trade and inflation data, in addition to China-EU trade talks over the next week.
- Monetary Policy: Lots of Fed speakers on the tape throughout the week to add to Powell’s messaging last week.
Horizon’s Investment Management Views
Last week was fully loaded: ~25% of S&P 500 by market cap reported earnings, top-tier economic data was released, and the Fed held its May policy meeting. Mega-cap tech posted solid results, which powered modest gains in the S&P 500. Guidance was mixed, however. Companies with significant exposure to enterprise AI solutions generally guided higher than expected, while companies with more consumer exposure flagged weak volumes and concerns around pricing. Starbucks went even further by signaling that they expect the consumer to soften going forward. We maintain our positive outlook on the consumer, although we are paying extra attention to the back of the recent company comments mentioned above.
The bifurcation between enterprises and individuals was also reflected in last week’s data releases. Although the labor market remains in good shape and wage growth remains strong, consumer confidence fell sharply. Powell bucked the trend of hawkish interest rate repricing with his dovish press conference; Treasuries rallied significantly and rate-sensitive sectors in the equity market, such as small caps and utilities, put in strong performances. Outside the US, the move lower in rates weighed on the dollar and supported international equities. With their economy on the ropes, Chinese political leadership has signaled additional fiscal and monetary support for their fledgling economy, adding to last week’s international equity outperformance.
Fortunately for weary investors, a light week ahead follows the previous deluge. In the US, we will get surveys on lender and consumer sentiment. We are also monitoring Fed speakers on the tape this week. We want to know if the Committee shares Powell’s dovish views. Outside the US, after a significant rally in Chinese stocks, trade and inflation data released this week could support or reject recent performance; China-EU talks also pose some headline risk.
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.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC.
© 2024 Horizon Investments, LLC.
