Halyard’s Weekly Wrap – 2/23/24 – Bluebird Days Ahead?

This was a quiet week for the fixed income market, with the entire yield curve closing within a few basis points of last Friday’s close.  The only real action came between late Wednesday afternoon into today’s close, as investors digested the minutes of the January FOMC meeting.  As expected, the minutes echoed Chairman Powell’s post-meeting press conference comments that communicated that a rate cut was not imminent.  That was enough to push the long bond up to 4.48%, the highest yield so far this year.  Contributing to the rise was initial claims for unemployment insurance which totaled 201,000 for the week.  That was the second lowest tally of 2024 and further evidence that the economy is not poised to enter a recession.  But that wasn’t enough to offset dip-buying on Friday.  On the week, the 30-year bond closed six basis-points lower, finishing at 4.37%.

The bigger news was the performance in the equity market.  For the week, the S&P 500 was nearly 2% higher with artificial intelligence-related companies capturing the imagination of equity investors.  Specifically, NVIDIA, which had seen its stock price rise from $495 on December 31st to $674 at the close of business on Wednesday afternoon as investors awaited the release of quarterly earnings.  The whisper was that earnings would be good, but the stock price was set to fall as investors took profit.  As it turned out, the earnings were fabulous, the forecast for future sales was boosted, and the CEO said the company was unable to keep up with demand.  The stock price is closing the week just shy of $800 per share, bringing its year-to-date performance to 60%.

The other bit of celebratory news this week was the Nikkei 225 touching an all-time high.  The news, buried on page B11 of Thursday’s Wall Street Journal, was that the Japanese index closed above the peak last touched on December 29, 1989; that’s 34 years.  Of course, there are nuances as to why that index failed to chart a new high for so long, but it was noteworthy, nonetheless.

The other bit of financial minutia that got little fanfare was the Fed’s System Open Market Account (SOMA) falling below $7 trillion for the first time since June, 2022.  The Fed accomplished the reduction by not allowing maturing securities to be reinvested into new government bonds.  There are economists that have claimed that milestone is the level at which the Fed will halt the roll off.  A cessation has been discussed by the Fed but there hasn’t been any firm commitment for a start date, so for the time being it’s “wait and see.”

Next week, in addition to leap day, we’ll see the release of much economic data with new home sales, consumer confidence measures, and manufacturing data coming throughout the week.  One technical note, while the employment report is typically released on the first Friday of the month, the February employment report will be released on March 8th.