What happened last week
The push higher in Treasury yields drove the third consecutive week of simultaneous losses in equities and core bonds.
Retail sales upside surprise showed continued US economic resilience.
Weak Chinese economic data and liquidity concerns radiating from the embattled property sector soured international sentiment.
What we’re watching this week
Powell’s speech at the annual Jackson Hole symposium could shed light on long-term interest rates.
On the data front, we get Purchasing Managers’ Index (PMI) readings from the US and major developed market countries.
NVIDIA earnings could set the tone for the Artificial Intelligence (AI) trade’s performance over the next couple of weeks/months.
Horizon’s Investment Management Views
Selling pressure persisted last week as global stocks and core bonds declined, making for the third week of consecutive losses for each, a streak last seen in February. Then as now, higher interest rates drove market action, but this time, long-term rates are leading the surge. The 30-year Treasury yield reached cycle highs last week, strained by illiquidity, Bank of Japan policy uncertainty, and US economic resilience. Despite these factors, credit markets remained relatively unaffected.
Equity investors followed the bond markets’ lead last week; selling by systematic investors also likely contributed to the broad-based equity losses. In the US, growth outpaced value, small caps lagged1, and the NASDAQ 100 found its footing following a string of difficult weeks. Weak Chinese economic data and liquidity concerns stemming from their overleveraged property sector also likely impacted international equity performance. The dollar’s resilience, even in the face of a steepening yield curve and the significant weakness in the Chinese yuan, acted as a further headwind to international equities.
Two main catalysts are in focus this week. On the macro front, we are keenly awaiting Fed Chair Jerome Powell’s Jackson Hole speech, which might shed some light on the neutral level of interest rates – a crucial anchor of long-term monetary policy expectations. On the micro side, we’re eyeing AI poster child NVIDIA’s (up 196% this year) earnings report after the close on Wednesday. We expect volatility and position adjustments around these events, but more broadly, we view the recent action across equities and fixed income more as a healthy correction than a new trend.
Disclosure
1The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. The S&P 500 Growth Index is a stock index that represents the fastest-growing companies in the S&P 500. The S&P 500 Value Index is an index comprised of the strongest value stocks on the S&P 500. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded companies listed on the Nasdaq stock exchange. Global stocks are represented by the MSCI ACWI Index, which is a stock index designed to track broad global equity-market performance. 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. 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.
