Halyard’s Weekly Wrap – 10/28/22 – The Four Horsemen of the Apocalypse

Last week’s Fed leak that they would consider slowing the trajectory of rate hikes at the November 2nd FOMC meeting continued to dominate trading this week.  Consensus seems to be developing that the recent softening of economic data will force them to temper their hawkishness and will raise the overnight rate 75 basis points next week and another 50 basis points in December.  Reflecting that, the 5-year note fell to 4.06% before closing the week at 4.18%, on the back of a stellar auction on Wednesday.  The auction cleared at 4.192%, through the presale when-issued yield of 4.21.  The bid to cover rose to 2.48 times versus 2.27 times at the last auction, indicating that demand was high

Equities continued their march to higher prices, despite some abysmal news out of several widely held companies.  The four giants of corporate America, Amazon, Alphabet, Meta, and Microsoft all communicated that revenue is slowing as the uptick they enjoyed during the pandemic has faded.  Amazon is down nearly 20% on the week after forecasting a sharp slowdown in holiday sales.  Meta Platforms, the parent of Facebook is closing the week below $100, after opening the year at $350 per share.

Contributing to the positive market tone was the Bank of Canada’s rate hike of 50 basis points on Wednesday.  The expectation had been that the central bank was going to raise the rate by 75 basis points.  Despite the less hawkish move, the BOC is expected to continue with its upward trajectory into year end.  We’re of the mind that the Fed and the Bank of Canada have made good on their promise to move aggressively in an effort to put the inflation “genie” back in the bottle and slowing the size and pace of hikes is appropriate.

Next week brings the FOMC rate decision on Wednesday, and the monthly employment report on Friday.  Consensus is looking for job growth to decelerate below 200,000 for the first time since January 2021, which would jibe with the anecdotal stories of companies culling their workforces.  Given the temperate weather we’ve enjoyed for the first month of autumn, it seems hard to believe but the unofficial holiday selling season begins the day after Halloween.  Retailers typically comment on the relative healthiness of sales as we progress through the quarter, and we’ll be listening for hints on the state of the economy.

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