What happened last week
- A debt ceiling agreement was reached, and will likely become law this week.
- NVIDIA earnings were released and the results offer fundamental support for the Artificial Intelligence (AI) theme gripping stock investors.
- Treasury yields retraced higher as data points to continued economic resilience.
What we’re watching this week
- The debt ceiling procedures and votes for potential last minute negotiations.
- The price action for stocks through the key 4200 technical level in the S&P 500, as well as in AI-related names.
- The pulse on the domestic labor market through Nonfarm Payrolls (NFP) report and Job Opening Labor Turnover Survey (JOLTS) survey.
Horizon’s Investment Management Views
Over the weekend, lawmakers reached a bipartisan agreement and drafted a bill that raises the debt ceiling for two years and caps spending modestly. We expect this bill to become law this week, although we are monitoring for any last minute discussions. We don’t expect large moves across markets outside of the very shortest maturity U.S. Treasury bills – this result was already in the price of most assets.
Last week’s highly anticipated earnings report from NVIDIA overshadowed the day-to-day noise of the debt ceiling. Looking broader, individual stocks and investment sectors exposed to the AI theme continue to dictate value; the NASDAQ 100 Index is up over 30% this year while the average S&P 500 Index stock has gained less than 1%. Our sense is that this trend has room to continue in the coming months. One caveat – the volatility of this trade is likely to increase as AI takes a front and center role in the financial media.
Recent economic data and earnings releases point to continued resilience in the U.S. consumer, the lynchpin of the economy. Ongoing economic strength and trend inflation inconsistent with the Fed’s 2% target has driven investors to price in a full rate hike over the two upcoming Federal Reserve meetings. Positive surprises from this week’s NFP report and JOLTS survey could pull that hike forward to the June meeting and potentially force investors to price in more interest rate increases from the Fed. Our sense is another hike will not meaningfully change the better mood on Wall Street, especially as the AI-craze takes hold, but it also pushes back the time when investors can well and truly put this Fed tightening cycle behind them.
Disclosure
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 U.S 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.
