What happened last week
- All-Time Equity Highs: Another week of new highs for U.S. large-caps as Broadcom, Oracle, and Adobe earnings show AI-driven upside fundamental surprises.
- Soft U.S. Inflation: Further progress towards Fed’s 2% inflation target as inflation data surprises to the downside.
- Hawkish Federal Reserve: Despite the soft inflation print, the Fed is maintaining a hawkish stance in case inflation ticks up.
What we’re watching this week
- U.S. Data: Following a string of conflicting consumer data (macro vs. micro), updates to retail sales and weekly jobless claims will take center stage.
- Price Action: Watching for signs of contagion from unwind of emerging market (EM) carry trades and stress in European bond markets.
- Asia Data: Global growth read-through from Chinese activity data and purchasing managers indices (PMIs).
Horizon’s Investment Management Views
Idiosyncratic developments in European politics and AI-theme overshadowed the May CPI release and the Fed meeting last week. The Fed’s updated rate projections and Powell’s messaging skewed hawkishly, yet U.S. Treasury yields fell about 20 bps across the yield curve as the inflation data came in surprisingly weak. Meanwhile, the dollar rallied, bucking its recently tight relationship with Treasury yields. Some of the dollar’s gains can be attributed to a flight to safety following the surprise election results in the European Parliamentary elections; European equities had their worst week since last October. Wider credit spreads and a higher Volatility Index (VIX) tell us that heightened risk aversion and position reduction was at play last week as well.
Meanwhile in U.S. equities, the S&P 500 notched another all-time high in incredibly narrow trading driven by the mega-caps. The NASDAQ 100 rallied over 3% while the average S&P 500 stock ended the week lower. The performance spread between these two market barometers was its widest since last May, when Nvidia Corporation announced blowout earnings. This time around, the poor market breadth was driven by news from different companies, including Apple’s new AI features, and earnings from other AI-related stocks including Oracle, Broadcom, and Adobe. In another sign of the bifurcation between the AI-theme and generalized risk aversion, small caps declined sharply even after the helpful inflation reading fueled lower bond yields.
Turning to this week’s U.S. data, retail sales and jobless claims (after prior week’s uptick) are the highlights in a holiday-shortened week. In markets, we are continuing to monitor positioning shakeouts in Europe and EM. Chinese activity data and PMI surveys will allow us to update our view on possible global growth trajectories over the next one to three months.
Chicago Board Options Exchange’s CBOE Volatility Index (VIX) is a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. Purchasing Manager’ Index (PMI) is a monthly economic indicator that measures the health of a country’s manufacturing or services sector. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. 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. The Nasdaq 100 Index is a stock index of the 100 largest companies by modified market capitalization trading on Nasdaq exchanges. 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. Small Caps are represented here by a broad-based small cap index; contact us for more information 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.
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