Last week was another tough week in the markets last week, particularly for the growth sector. The NASDAQ index, which is heavily weighted in technology shares, lost ground for the sixth consecutive day and lost over 5% for the week. It lost over 2% on Friday alone. The NASDAQ now trails the S&P 500 by over 3% year-to-date. The losses were particularly acute in some of the names that have benefited the most from investor enthusiasm in artificial intelligence, including large losses Friday in Nvidia losing 10% (its worst day since March 2020) and Super Micro Computer which lost 23%.
Commodity prices did move higher last week and now lead the major asset classes in terms of year-to-date returns. This happened despite a higher dollar again. Also interesting is that non-US stocks lost less ground again than the US market and have outperformed US stocks in recent months during this period of short-term dollar strength. Typically, a stronger dollar means stronger relative performance for the US market, but if growth stocks lead the way lower, given that the US market has more exposure to growth/tech names, a stronger dollar may not be enough to help relative performance.
A leading reason for losses last week is that long-term interest rates continue to march higher. Ten-year Treasuries, for instance, reached their highest levels since last November following last week’s strong retail sales numbers. In turn, more investors are believing that inflation might not be conquered yet and interest rates will remain higher for longer. The “higher for longer” view was indeed repeatedly reinforced from various Federal Reserve speakers last week, including Federal Reserve Chair Jay Powell stating:
"The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence."
As for this week, it is another busy one for earnings. This week features some of the big names in tech and other market favorites in recent years, including Meta (Facebook), Microsoft, Alphabet (Google) and Tesla. First quarter GDP is reported this Thursday. Expectations are for 2.2% growth. We also have key inflation data Friday (PCE). Headline PCE is expected to be 2.6% year-over-year, while core-PCE is expected to be 2.7%. Developments in the Middle East and interest rate movements could also be market movers again this week.
Bottom line:
Stay invested. Stay diversified. Stay disciplined.
If you have any questions or comments, please let us know at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust. See you next week!