What happened last week
- Stocks climbed as the Fed and European Central Bank (ECB) raised rates to 22-year highs
- Continued string of strong US data pushed back recessionary timelines once again
- Mega-cap tech affirmed its year-to-date dominance with a strong showing in Q2 earnings
What we’re watching this week
- The last major week of Q2 earnings is expected to continue the trend of majority upside surprises
- Key labor market releases and an updated Fed lending standards survey are highlights of the domestic economic calendar
- Japanese bond market price action following the Bank of Japan’s (BOJ) hawkish surprise and news flow out of China for signs of tangible fiscal easing are top of mind internationally
Horizon’s Investment Management Views
- Stock prices and bond yields rose in an action-packed week full of macro and micro catalysts. Dovish press conferences from both the Fed and ECB supported risk sentiment despite both central banks hiking rates to their highest levels since 2001. Investors got a further boost from a “goldilocks” mix of economic data out of the US, including stronger-than-expected nominal GDP growth, lower inflation, and robust consumer confidence. The BOJ upset the bullish string of macro events at their Friday meeting as they surprised hawkishly by allowing long-term yields to move higher in their heavily manipulated bond market; global long-term sovereign bond yields rose on the news.
- Domestic Q2 earnings also supported the rally as most companies outperformed analyst expectations. Strong mega-cap tech earnings led to continued large-cap growth and the NASDAQ 100 dominance over dividends and value. With the abundance of positive news, the slowdown of nominal Q2 GDP (which drives corporate revenues) was lost in the deluge. We are watching if that GDP slowdown makes it into guidance for the back half of the year.
- The upcoming week promises to be busy as US investors absorb the last significant week of earnings, the July jobs report, and updates on domestic bank lending standards. Outside the US, there are two primary areas of focus. Firstly, we are watching for where Japanese Government Bond yields settle following Japan’s shift towards a more restrictive policy following over a decade of extremely loose monetary policy. Secondly, the recent rally in Chinese stocks has been driven by hopes of a major policy pivot to support their flagging economy; we are looking to delineate between tangible policy and rhetoric.
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.
