What happened last week
- Price action: China led on a green week for global stocks, ratcheting higher as Chinese policy support continues to improve the outlook for that country and EM more broadly.
- Data: A slightly cooler-than-expected CPI print did not materially change the “wait and see” Fed policy outlook.
- Consumer: A miss on retail sales, in addition to other emergent fractures to consumer narrative, were tempered by Walmart’s strong earnings and guidance.
What we’re watching this week
- Monetary Policy: Highlight is a speech from Waller, a key member of the Fed’s Board of Governors.
- Earnings: Nvidia (NVDA) earnings are key for the AI theme; earnings from key retailers will add to our view of the consumer..
- Internationals: Rally in Chinese equities may need additional fuel; monitoring China’s “reunification” messaging around Taiwan’s Presidential Inauguration.
Horizon’s Investment Management Views
Global stocks rallied for a fourth straight week and closed Friday at fresh all-time highs. While the round numbers for U.S. indices garner much media attention (Dow Jones Industrial Average above 40,000 and S&P 500 above 5,300), equity leadership has seen profound shifts this quarter. Domestic mega-cap tech dominance has taken a backseat to international stocks, especially emerging markets (EM), and Chinese equities. Much of this recent EM rally is related to policy support by the Chinese government against extreme negative sentiment and underweight investor positioning. Commodity prices are also on the rise, with copper futures up ~8% last week. Not all of this is China, however; some of this rally in industrial metals prices is related to domestic data center demand and the importance of power infrastructure as AI use deepens. NVDA’s earnings and guidance this week are important data points in that process and something that we will be monitoring closely for signs that the market’s preferred expression of the AI theme is changing.
Last week’s macro releases were slightly weak, but in the end, a downside miss to retail sales and a slightly cool April inflation report did not meaningfully change the patient stance of the Fed. Walmart’s upside earnings report last week arrested growing investor negativity on the consumer. There was one pitfall in the release from the country’s largest retailer, however, increased foot traffic from consumers “trading down” to control costs and keep their budgets in check was the main source of the beat. Staying on this thread, other retailers, including Target, TJ Maxx, Lowe’s, and Ross, are reporting earnings this week. We will use these reports to inform our outlook for the consumer, a key pillar of U.S. economic resilience.
Outside of the earnings releases mentioned above, this week is light for market catalysts. The Fed’s unofficial policy leader, Federal Reserve Board Governor Christopher Waller, speaks on Tuesday ahead of the Fed blackout period. Overseas, reports of aggressive support for Chinese real estate will need tangible action to continue the recent rally.
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