Halyard’s Weekly Wrap – 10/21/22 – Fed’s Sleight of Hand

A Wall Street Journal story released this morning suggested the Fed would raise rates by 75 basis points at the November FOMC meeting but would then evaluate the need and magnitude of a December rate hike.  The market had been anticipating 75 basis point hike at each of the meetings. As we’ve seen in the past, most notably in June when the Fed leaked that they intended to raise rates by 75 basis points, the Fed will leak their intentions in an effort to prepare the market for a change.  Whether it was a deliberate signal or cover for St Louis Fed President Bullard’s ethical gaffe, the market heard it loud and clear.  The two-year note fell 14 basis points on the day as did Fed Fund futures.  The peak in Fed Fund futures continues to be May 2023.

Given the economic data released this week, the Fed has good reason to reconsider their aggressive reversal of monetary policy.  The housing market index, housing starts, and existing home sales all plunged last month, as mortgage rates topped 7%.  Single family housing starts have plunged 26% since February of this year.

Earnings continue to trickle in with most companies meeting analyst expectations.  One outlier was Ally Financial, one of the largest auto lenders in the country.  They reported that fewer people than expected took out loans to buy new cars in the quarter.  The company is down more than 10% for the week and is down nearly 50% year-to-date.  Despite bad news in the home building and auto sectors, the S&P 500 reversed the “death” plunge it experienced last week and is closing out the week with more than a 3% gain.

Next week will see a significant pick up in earnings releases with companies like GE, Pulte, 3M, Ethan Allen, Auto Nation, and Colgate Palmolive offering an insight into the consumers propensity to spend.  In all, Bloomberg has more than 900 companies reporting next week so there will be plenty of financial data to digest. In addition, on Thursday the Bureau of Economic Analysis will release the first estimate of Q3 GDP.  Recall that the last two GDP measures have shown a contracting economy, also known as a recession.  Analysts are expecting 2.3% annualized growth despite the drag from home and car sales.  None of the economists surveyed are forecasting a third consecutive contraction while the most bullish is looking for 3.3%.

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.