Halyard’s Weekly Wrap – 1/19/24

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At the close of trading last Friday, the street thinking was that the Fed would cut rates at the March meeting and that there would be at least three additional rate cuts this year. By Tuesday, that conclusion was being reassessed and the selling has been relentless. The 5-year Treasury is closing the week at 4.06%, up nearly 30 basis points from last Friday’s close. The initial catalyst for the move was Federal Reserve Governor Chris Waller’s comments on Tuesday morning that suggested that the Fed would be careful and deliberate in cutting rates this year which contradicted the opinion that the cuts would come soon and at every other meeting.

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Halyard’s Weekly Wrap – 1/12/24

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Communicating that they expected three 25 basis point rate cuts this year, the open market committee members convinced bond buyers that all was well and to expect inflation to continue to fall as the year progressed. Then the December inflation reports were released. On Thursday the consumer price index, year-over-year, reversed course and ticked up to 3.4%, up from the 3.1% recorded last month. The expectation was that it would rise 0.1%. On the same morning, the lesser-followed Atlanta Fed wage tracker, a measure of aggregate wages, ticked up to 5.4% year-over-year from the 5.1% recorded in November. Those measures indicate that consumers are still “paying up” to consume and are demanding higher wages to keep pace with rising prices. That result is going to make it difficult for the Fed to cut the overnight rate at the March FOMC meeting. That meeting is scheduled for March 20th, giving the Fed two more inflation reports to examine. But, given the Fed’s newfound credibility as an inflation-fighter, we think the committee will be unwilling to cut rates while inflation is still a problem.

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Halyard’s Weekly Wrap – 1/5/24

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The first week of the new year had been a quiet one until the employment report was released this morning. The headline non-farm payrolls surprised to the upside, with 216,000 new jobs added to the workforce, and the unemployment rate falling to 3.7%. At first glance the report was a solid one and the bond market immediately sold off. However, digging into the details revealed that it was not as robust as the headline suggested. Glaringly, household employment fell 683,000; the biggest drop since April 2020 when COVID crushed employment for much of the workforce. It’s not unusual for the non-farm and the household reports to deviate, but an 899,000 deviation leads us to conclude that one or the other will be significantly revised. Later this morning, the Institute for Supply Management (ISM) reported a sharp drop in their services employment survey. Again, the drop was the sharpest since April 2020. Investors seem to have interpreted the combined reports as offering a solid backdrop for the Fed’s plan to cut rates this year.

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Halyard’s Year End Wrap – 12/31/23

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Halyard’s Year End Wrap – 12/31/23

It’s been a remarkable year in the capital markets!  Last December, year-over-year consumer price inflation was running 6.5% and the Federal Reserve was solidly in “higher for longer” mode with the committee prepared to continue to raise rates to quell inflation.  The ten-year Treasury opened 2023 yielding 4.48%, ticked up to a high of 4.65% early in the year, before ultimately settling at 3.88%.  The Fed communication has changed dramatically in the last 12 months.  They dropped the higher for longer mantra this month, instead communicating that they anticipate three rate cuts in the coming year.  Let’s hope they’re not premature in their abrupt policy change.  By several measures, the economy continues to run hot, especially employment.  It has become clear that there’s a worker shortage in the United States.  The unemployment rate in November was 3.7%, just above the all-time low.  The Fed usually doesn’t cut rates when unemployment is near a cycle low.  But this Fed has proved that they have no interest in any rules-based policy.

Happily, the year is going out with a balanced funding picture.  Historically, at quarter-end and year-end, the money markets have experienced sharp moves as financial institutions endeavor to bring their accounts into balance.  This year, signs of such a scramble are few and far between and in instances where they are present, the impact is minimal.

Looking out to the first week of 2024, there’s plenty to drive market volatility.  On Wednesday, the ISM manufacturing surveys are released in the morning with minutes from the December FOMC meeting coming later in the day.  We’ll be especially curious to sift through the minutes to understand how the committee arrived at their rate cut prognosis.  Thursday brings weekly unemployment data and the durable goods report for November.  On Friday, the unemployment report for December is expected to show a slowdown in hiring from last month, coming in at 168,000 new jobs.  At current levels the bond market is not expecting an upside surprise.  Beware!



This commentary is being provided by Halyard Asset Management, L.L.C. and its affiliates (collectively “Halyard” or “we”) for informational and discussion purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation with respect to the securities used, or an offer or solicitation, and is not the basis for any contract to purchase or sell any security, or other instrument, or for Halyard to enter into or arrange any type of transaction as a consequence of any information contained herein.  Although the information herein has been obtained from public and private sources and data that we believe to be reliable, we make no representation as its accuracy or completeness.  The views expressed herein represent the opinions of Halyard Asset Management, LLC, or any of its affiliates, and are not intended as a forecast or guarantee of future results. Past performance is not indicative of future results.

Halyard’s Weekly Wrap – 12/22/23

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The Euphoria from last week’s news that the Fed was done raising interest rates and expects to cut rates by 75 basis points next year continued into this week. In anticipation of those cuts, the entire yield curve has priced approximately 100 basis points lower. The knock-on effects can be found almost everywhere; the S&P 500 is less than 1.0% off an all-time high, mortgage rates are back below 7.0%, and consumer confidence as measured by the Conference Board’s present situation index is skyrocketing. But we wonder if that euphoria is unwarranted. After all, the move lower in rates is an easing of financial conditions, coming while year-over-year core CPI is 4% and pressure for higher wages is unrelenting.

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Halyard’s Weekly Wrap – 12/15/23

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This was a week when investors would have done well ignoring the economic calendar and instead focused on the summary of economic projections, more widely known as the “dot plot.” Released along with the minutes of the open market committee meeting on Wednesday, the dot plot showed a change in thinking from the committee. Investors had been speculating that the Fed had reached the peak of their tightening cycle and the FOMC release confirmed that. The dot plot released in September showed more than half of the committee expected an additional rate hike this year. The December chart indicated that no members anticipate any additional hikes this year. Moreover, the median view is that there will be 75 basis points of rate cuts in 2024. With that decidedly dovish statement, stock and bond markets continued their bullish run. The five-year Treasury note is trading below 4%, closing the week out at 3.92%, while the S&P 500 continues its parabolic rise, rallying more than 15% since the last week of October.

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Halyard’s Weekly Wrap – 12/8/23

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This morning’s employment report delivered a curveball to market participants who had been looking for continued economic moderation. That was not to be the case. The economy added 199,000 new jobs in November, up from the previous month and 14,000 more than the consensus had been expected. Average hourly earnings rose 4.0% year-over-year, as it did the prior month. But what really grabbed the investor’s attention was the downtick in the unemployment rate, which came in at 3.7%, 0.2% below the previous month. The large change in household employment, 747,000 new jobs reported, and the change in the size of the workforce, 532,000 new entrants, was responsible for the decline.

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Halyard’s Weekly Wrap – 12/1/23

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There were two news stories this week that made us double check the calendar to ensure that we hadn’t transported back sixteen years to pre-crisis 2007. The first had to do with the Federal Housing Finance Agency (FHFA) and the second was the proliferation of private credit.

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Halyard’s Weekly Wrap – 11/24/23

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The upward trajectory of stock prices continued this week despite what some observers called hawkish Fed minutes. We’re hesitant to side with that view simply because there was no deviation from the comments that Chairman Powell communicated at the post-meeting press conference. The committee remains vigilante against any signs that economic growth or inflation is reaccelerating and will raise the Fed Funds rate again if needed.

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Halyard’s Weekly Wrap – 11/17/23

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The October Consumer Price Index, at the headline level, was a welcome panacea for investors’ perception of inflation. Coming in at 3.2% year-over-year, CPI was universally greeted as good news and interest rates plunged across the curve. Looking beyond the headlines at some of the subcomponents raised suspicions that some of the data had been “fudged.” Specifically, the price of health insurance. For many, November is healthcare renewal season and it’s never cheaper to renew than it was the previous year. And certainly not 33.98% cheaper as measured by the BLS report due to a change in calculation methodology. That was one of the subcomponents that stuck out in Tuesday’s report. Nonetheless, the bigger picture is that inflation is falling, and the Fed can take solace in that fact. Moreover, that inflation report pretty much takes a rate hike at the December meeting off of the table as reflected in the Fed Futures market. Futures are now implying no further hikes and a rate cut of 25 basis points by next summer.

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