Halyard’s Weekly Wrap – 11/25/22

Substantial Majority, Gobble Gobble

The Federal Reserve released the minutes of their last Open Market Committee meeting at 2:00 p.m. on Wednesday, the afternoon before Thanksgiving. There are a few days on the calendar when liquidity is razor thin and Thanksgiving eve is one of them.  The minutes were particularly anticipated as several Fed speakers had recently hinted at reducing the magnitude of the rate hikes going forward.  That suspicion was affirmed in the “Participants View” section.  The exact quote was “…a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.”  The key words in the quote were “substantial majority.”  Remember, committee votes do not need to be unanimous; a simple majority is required, and a substantial majority tells me that they have that.  We interpret that statement as the Fed communicating that the December hike will not be 75-basis points, with a 50-basis point hike more likely.  The minutes also acknowledged that rate hikes impact the economy with a lag, and they are starting to see evidence of slowing.  But any hint of policy action in the New Year was avoided entirely.

As expected, traders took the news as unambiguously positive and rallied both stock and bond prices into the close.  The 30-year closed the day at 3.73%, well off the peak of 4.38% hit late last month and the S&P 500 rallied back above 4,000 to the highest level since the kickoff of earnings season.  Despite the bounce higher, the index remains about 20% below the peak reached on the first trading week of this year.

Also, this week, New Home Sales bounced unexpectedly in October, jumping 7.5% from the anemic 588,000 level recorded in September.  At 632,000, new home sales are still at severely depressed levels relative to those recorded over the last two years, but the uptick was welcome, nevertheless.

Next week will be a data-heavy week, with consumer confidence, GDP, pending home sales, JOLTS, and finally the monthly employment report on Friday.  Consensus is looking for the economy to add 202,000 jobs in the month, which would be the lowest since December 2020.  Given the recent upward drift in the weekly employment data, we are guessing that the consensus estimate is too high, and the actual report will come in below the 200,000 level.