Halyard’s Weekly Wrap – 7/28/23

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Economic Acceleration? – Halyard’s Weekly Wrap – 7/28/23

The highlight of the trading week was not Wednesday’s FOMC rate decision, but the slew of economic data released on Thursday.  The data was unambiguously strong, and more in line with an accelerating economy than one that is slowing.  Gross domestic product (GDP) was expected to slow to 1.8% annualized from the 2.0% recorded in the first quarter.  Instead, it grew 2.4%, driven higher by continued resilient consumer spending and strong business spending.  The price index component of the report grew at an annualized rate of 2.2%, down from 4.1% recorded in the prior quarter.

Released simultaneously with GDP were the durable goods and the weekly unemployment reports.  Durable goods came in much higher than expected, gaining 4.7% for the month, skewed by a big jump in aircraft deliveries.  However, excluding aircraft, durable goods sales grew by a respectable 0.6%.  Initial claims and continuing claims for unemployment insurance both fell by more than expected, with the former totaling the lowest level since February of this year.

The data release was not all good, though.  Pending home sales were down 14.8% year-over-year, but with mortgage rates at unaffordable levels, that outcome was not a surprise.

The results of the FOMC meeting were as expected.  The committee raised the overnight interest rate corridor 25 basis points to 5.25% to 5.50%.  In the Chairman’s post-meeting press conference Powell refused to clarify whether he expected to raise the rate again in September, despite being asked the question repeatedly, and from many different angles.  From our perspective, if the surprisingly strong data released on Thursday continues through the summer, a September rate hike is a lock.

The unexpectedly favorable news had an outsized effect on the markets.  The 30-year bond traded 2-points lower on Thursday and is closing out the week at 4.03%, about one basis point below the high yield for 2023.  Similarly, the S&P 500 set a new 2023 high on Thursday and is closing the week slightly below that high.

Looking forward to next week, we’ll be watching to see if the drop in unemployment claims is foretelling an acceleration in the jobs gained in July.  On Tuesday, the oft ignored Job Opening and Layoff Turnover (JOLTS) report will give us a look at the number of unfilled jobs in the economy.  On Friday we’ll be watching the employment report to determine if the slowing last month continued into July or if the unemployment insurance dip is confirmed by accelerated hiring.



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 – 7/21/23

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The economic data this week was decidedly mixed, casting some doubt on the Fed’s likelihood to raise the overnight rate at the upcoming FOMC meeting. The June Retail Sales report came in at 0.2% month-over-month, well below the 0.5% expectation. But that number was pulled lower by a dip in gasoline prices and building materials. Looking past the headline to what the BLS calls the control group, the section more attuned to the consumers propensity to spend, the report told an entirely different story. For the month the control group spending increased 0.6%, led by online shopping. Moreover, the May retail sales results were revised higher from 0.3% to 0.5%, fortifying Chairman Powell’s message that monetary policy is not tight enough.

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June 2023 – Monthly Commentary

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The June payroll gain was the slowest in 30 months, coming in at 209,000 new jobs versus the 230,000 consensus expectation. That disappointment was offset by a greater than expected jump in average hourly wages. The wage measure came in at a 4.4% annualized rate versus the 4.2% expectation. The unemployment rate ticked down to 3.6%. A loosely interpreted rule of thumb is that the economy will continue to grow when more than 200,000 jobs are added per month. The BLS report was especially disappointing when compared to the private ADP jobs measure released on Thursday that showed a whopping gain of 497,000 new jobs. As we have cautioned in the past, seasonal adjustments applied to the BLS measure cause the two reports to deviate from time to time. Also of note, the revision to the previous two months was 110,000 jobs lower.

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Halyard’s Weekly Wrap – 7/14/23

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Bond and stock prices rallied sharply this week, but the biggest news came on Wednesday when the Securities and Exchange Commission amended the rules by which money market funds operate. It was the third time in 15 years that the SEC changed money fund rules. The moves are designed to prevent panicky investors from pulling money during times of market stress such as those witnessed in 2008 and 2020. Our take is that they make money market funds even less attractive to investors. The specific changes are that funds would impose a fee of up to 2% when net daily redemption exceed 5%; the funds are now required to hold 25% of the assets under management in overnight holdings, up from the previous mandate of 10%; and the funds will be required to hold 50% of assets in holdings that mature in one week, up from 30%. Funds have 18 months to become compliant with the rules.

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Halyard’s Weekly Wrap – 7/7/23

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We guessed correctly last week that Chairman Powell’s comment in Portugal would supersede the June FOMC minutes, depriving the market of any unforeseen volatility. With that, the highlight of this week’s data releases was the monthly employment report.

It was a mixed bag as the economy gained 209,000 new jobs versus the 230,000 consensus expectation. That disappointment was offset by a greater than expected jump in average hourly wages. The wage measure came in at a 4.4% annualized rate versus the 4.2% expectation. The unemployment rate ticked down to 3.6%. A loosely interpreted rule of thumb is that the economy will continue to grow when more than 200,000 jobs are added per month. The BLS report was especially disappointing when compared to the private ADP jobs measure released on Thursday that showed a whopping gain of 497,000 new jobs. As we have cautioned in the past, seasonal adjustments applied to the BLS measure cause the two reports to deviate from time to time. Also of note, the revision to the previous two months was 110,000 jobs lower.

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