Halyard’s Weekly Wrap – 5/17/24

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The April consumer price index and the various subcomponents came in as expected offering relief to investors fearful of an upside surprise. The year-over-year headline measure showed that inflation cooled to 3.4% from the 3.5% reported in March. The change in direction was welcome news to the capital markets but the incremental improvement is hardly enough for the Fed to claim victory. There’s an old saying in the capital market “that one number does not make a trend” and that clearly applies to last month’s CPI. We’ll be watching the index through the summer to identify any potential trend.

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Halyard’s Weekly Wrap – 5/10/24

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After last week’s repricing of the yield curve to again reflect the possibility of one rate cut this year, the interest market barely moved this week. The dearth of economic data allowed the 2-year/30-year yield curve to remain at a 20-basis point inversion with the 2-year notes closing the week modestly higher at 4.86%. That was good news for the equity market as the S&P 500 continued to rally and now stands less than 1% away from its all-time high as earnings releases dwindle to a trickle.

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Halyard’s Weekly Wrap – 5/3/24

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Investors began this week with much trepidation, given the mixed economic data and stubbornly high inflation that has characterized the first four months of this year. It was widely expected that Powell would offer a “mea culpa” for suggesting that rate cuts were imminent back in December. He didn’t go quite that far but did opine that the committee was “less confident” that inflation would fall to 2% in the near term. But he also cast doubt on the possibility that the next move in interest rates would be a hike.

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Halyard’s Weekly Wrap – 4/26/24

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On the back of strong retail sales in the last three months we were expecting that the first pass of Q1 GDP would come in above expectations. When the results were released yesterday, the tally fell well below the 2.5% consensus expectation, showing that annualized growth slowed to 1.6%. Digging through the details yielded a mixed conclusion. Personal spending, the main driver of growth, rose 2.5%, below the 3% consensus expectation, but still supportive of the view that consumers continue to spend.

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Halyard’s Weekly Wrap – 4/19/24

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4/19/24 – Was Powell Born a Ramblin’ Man?

The red-hot economic data continued this week with the release of March Retail Sales.  The report showed that retail sales rose 1.1% over the previous month, more than double what was expected.  February retail sales were revised to a 0.6% monthly gain from the 0.3% that was first reported.  The gains were broad based and have some economists thinking that the Q1 GDP forecast may be too low.  The estimate last Friday was for 2.1% growth, but the consensus thinking as of this morning is 2.5%.

The one sector where consumers were not spending last month was housing.  Housing has been in a slump since the Fed began raising interest rates, causing affordability of home ownership to slip away from most first-time home buyers.  The trend had shown signs of bottoming at the end of last year as the forecast for lower interest rates piqued buyer interest.  But that reversed in March as it became apparent that interest rates will remain stubbornly high.  Current 30-year mortgage rates have again topped 7% which has been a level of deterrence to home buyers.

The various Fed speakers this week reinforced the view that we won’t see three rate cuts this year and traders reacted negatively when New York Fed President John Williams mentioned another rate hike, which he assured listeners was not his base case.  Even that mention leads us to believe it’s in the back of his mind and may be discussed at the next FOMC meeting.

As an aside, we read through the Federal Reserve’s beige book on Wednesday and were befuddled by its conclusions.  The beige book qualitatively aggregates economic conditions across the 12 Federal Reserve districts by surveying a diverse population.  The conclusion was “ten out of twelve districts experienced slight to modest growth,” and “consumer spending barely increased at all.”  Indeed, looking through the summaries of each of the districts, the conclusion did not jibe with what we’re seeing in the “hard” data.  We’ve concluded that it’s a misperception of what survey participants believe is happening in the economy versus what is actually happening.

Next week, in addition to the first look at Q1 GDP, the government will release data on durable goods and home sales, with the University of Michigan surveys rounding out the week.  The last survey of 12-month forward inflation ticked up 0.2% to 3.1%, an unwelcome sign of consumer psychology on where prices are heading.



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 – 4/12/24

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If you’re thinking there has been a sea change in expectations this week, it’s because there has been. The March Consumer Price Index slammed the door on any hopes of a near-term rate cut with the year-over-year core CPI rising 3.8%. The CPI seems to have settled in at the 3.8% annual rate which is a level that is too high for the Fed to cut interest rates anytime soon. Reflecting that, many of the “Street” economists have withdrawn their forecast for a June rate hike and the possibility of two additional cuts this year and have now taken the safe forecast of one rate cut this year coming at the December meeting. Indeed, the Fed Fund futures have priced in a singular rate cut in the December contract.

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Halyard’s Weekly Wrap – 4/5/24

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The Bond market continued to reprice the yield curve this week. Driven by economic data that showed the US economy is still firm despite higher interest rates. Manufacturing and Service surveys indicated expansion – the first such reading for Manufacturing since September of 2022. On Friday, the Non-farm payroll release created a seismic move in rates as the report showed 303,000 new jobs for the month versus expectations of +214,000. The 3-month average of job gains is 276,000 – eclipsing last year’s average gain of 242,000. The unemployment rate stood firm at 3.8%.

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Halyard’s Weekly Wrap – 3/29/24

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Though the minutes of the recent FOMC meeting reconfirmed the committee’s expectation that they’ll cut the overnight rate three times this year, market consensus is moving away from that expectation. Fed fund futures had priced in as many as five rates cut by December at the start of this year. Instead, the future now implies about 60 basis points of rate cuts by the end of this year.

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Halyard’s Weekly Wrap – 3/22/24

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As expected, the FOMC left the Fed Funds corridor unchanged on Wednesday. Mildly surprising to us though, their economic forecast continues to indicate that they expect to cut the overnight rate three times this year. As we’ve written on numerous occasions, the job market remains robust, and the consumer price index has stabilized at the mid-3% level, well above the Fed’s stated target. The question being asked, is there an imminent threat to economic growth that the Fed is aware of, but the rest of the investing community is not? Especially since a popular financial conditions indicator, which aggregates broad financial conditions such as interest rates, equity prices, and credit spread is showing that financial conditions have eased since last fall. Why then is the Fed threatening to ease policy?

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Halyard’s Weekly Wrap – 3/15/24

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The bullish tone on which the bond market closed last week has completely reversed and is closing this week with a decidedly bearish resolve. The hope had been that the inflation measures this week would show further progress toward the Fed’s 2% target. That didn’t happen. Instead, the Consumer and Producer price indices both moved higher on a month-over-month basis in February. The core CPI index was 0.4% higher than the January measure, rounding to roughly 5.0%, a far cry from the Fed’s target.

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