What happened last week
- Global stocks edge higher, led by the US, in a week characterized by slow and sluggish summer sessions
- Regional banks rallied, boosting small caps; trend outperformance of small caps unlikely due to various headwinds
- International stocks lagged with significant weakness out of emerging markets despite China’s auto-market stimulus announcement
What we’re watching this week
- Earnings reports from companies that make up a little under half of the market cap of the S&P 500
- Central bank policy meetings in the US, EU, and Japan: the Fed and the European Central Bank (ECB) are expected to hike by 25 bps, Bank of Japan (BOJ) to extend accommodative policy
- Key US economic data including second-quarter GDP, employment costs, and the Fed’s preferred inflation gauge, the core personal consumption expenditures index (PCE).
Horizon’s Investment Management Views
- In a quiet summer trading week, global stocks nudged higher as domestic equities led international. Year-to-date losers, not mega caps, led last week’s rally in the US. These broader price gains were likely due to short covering and a special index rebalance for the NASDAQ 100, which reduced concentration in top holdings. However, this improved market breadth in the US didn’t reach international markets. Non-US stocks fell modestly, with emerging markets and China, which announced new consumption stimulus, exhibiting considerable weakness.
- Regional banks rallied sharply on better than feared deposit figures, realizing their best weekly gain since May. This price impact likely bled over to small over large caps last week, given the high recent correlation between the two markets. We view a broad-based rally in small caps as unlikely due to headwinds from access to credit for smaller companies and bank profitability fears. We expect this week’s earnings reports from mega-cap technology and Artificial Intelligence names to be another potential driver for continued outperformance by the biggest names in the S&P 500.
- It’s also a big week for macro – the Fed, ECB, and BOJ all meet this week. The market has fully baked in 25 bp hikes by both the Fed and the ECB – don’t expect market volatility unless the pressers deviate wildly from current market pricing. The BOJ wraps up the week on Friday with no expected change to their incredibly accommodative monetary stance, a potential tailwind to Japanese stocks. We also get a first look at 2Q GDP and two important bits of inflation data – core PCE and the employment cost index- and a Politburo meeting in China.
Disclosure
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. The Nasdaq 100 Index is a basket of the 100 largest, most actively traded companies listed on the Nasdaq stock exchange. The S&P 500 Index represents the largest US companies. 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.
