Halyard’s Year End Wrap – 12/31/23
Halyard’s Year End Wrap – 12/31/23 It’s been a remarkable year in the capital markets! Last December, year-over-year consumer price inflation was running 6.5% and the Federal Reserve was solidly in “higher for longer” mode with the committee prepared to continue to raise rates to quell inflation. The ten-year Treasury opened 2023 yielding 4.48%, ticked up to a high of 4.65% early in the year, before ultimately settling at 3.88%. The Fed communication has changed dramatically in the last 12 months. They dropped the higher for longer mantra this month, instead communicating that they anticipate three rate cuts in the coming year. Let’s hope they’re not premature in their abrupt policy change. By several measures, the economy continues to run hot, especially employment. It has become clear that there’s a worker shortage in the United States. The unemployment rate in November was 3.7%, just above the all-time low. The Fed usually doesn’t cut rates when unemployment is near a cycle low. But this Fed has proved that they have no interest in any rules-based policy. Happily, the year is going out with a balanced funding picture. Historically, at quarter-end and year-end, the money markets have experienced sharp moves as financial institutions endeavor to bring their accounts into balance. This year, signs of such a scramble are few and far between and in instances where they are present, the impact is minimal. Looking out to the first week of 2024, there’s plenty to drive market volatility. On Wednesday, the ISM manufacturing surveys are released in the morning with minutes from the December FOMC meeting coming later in the day. We’ll be especially curious to sift through the minutes to understand how the committee arrived at their rate cut prognosis. Thursday brings weekly unemployment data and the durable goods report for November. On Friday, the unemployment report for December is expected to show a slowdown in hiring from last month, coming in at 168,000 new jobs. At current levels the bond market is not expecting an upside surprise. Beware!
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