Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
09/04/26 – The yield to maturity on 2-year US Treasury Notes is 100bps higher since February 28th, – the day the US and Israel escalated the Iran conflict.
The non-farm payroll total for August was a bit of a shocker, with the economy adding 162,000 new jobs versus the expectation for 55,000. That result exceeded even the most optimistic forecast of 125,000 put forth by a private economic forecasting firm.
In addition, the 23,000 lost jobs that were originally reported last month was revised to a gain of 21,000. The unemployment rate remained unchanged at 4.1%, the lowest it’s been in nearly a year.
Economists caution that the August employment report can be tricky due to impact of local educational employment returning and the staggering of the first day of school for regions across the country. Nevertheless, it’s an undeniable bright spot in an economy that has been grinding along despite the negative headlines of the prolonged war with Iran and persistent inflation.
Other economic data released this week showed the economy continues to grow at a moderate pace with the Job Openings report stable, durable goods sales continuing to grow and the initial claims for unemployment insurance holding steady at the low end of the range.
Given Chairman Warsh’s hawkish comments at last week’s Jackson Hole symposium, this morning’s release makes a September rate hike all but a certainty. The consumer price index, to be released next Friday, could offer some relief as the core year-over-year inflation is expected to fall to 2.4% from the 2.5% recorded in the previous month. But we don’t think that outcome is compelling enough to keep the committee from raising the overnight rate.
In anticipation of the hike, the two-year note is closing just below the 4.40% high set on September 1st. On the other hand, the equity market seems to be sanguine to the idea of a 25-basis point rate hike. For the week, the S&P 500 is nearly unchanged and less than 1.5% below the all-time high set last month.
The pre-FOMC communications blackout period starts tomorrow so any discussion of what the committee may do will be unofficial.
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.
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Halyard’s Weekly Wrap – 7/14/23
/in Weekly Wrap/by halyardBond and stock prices rallied sharply this week, but the biggest news came on Wednesday when the Securities and Exchange Commission amended the rules by which money market funds operate. It was the third time in 15 years that the SEC changed money fund rules. The moves are designed to prevent panicky investors from pulling money during times of market stress such as those witnessed in 2008 and 2020. Our take is that they make money market funds even less attractive to investors. The specific changes are that funds would impose a fee of up to 2% when net daily redemption exceed 5%; the funds are now required to hold 25% of the assets under management in overnight holdings, up from the previous mandate of 10%; and the funds will be required to hold 50% of assets in holdings that mature in one week, up from 30%. Funds have 18 months to become compliant with the rules.
Halyard’s Weekly Wrap – 7/7/23
/in Weekly Wrap/by halyardWe guessed correctly last week that Chairman Powell’s comment in Portugal would supersede the June FOMC minutes, depriving the market of any unforeseen volatility. With that, the highlight of this week’s data releases was the monthly employment report.
It was a mixed bag as the economy gained 209,000 new jobs versus the 230,000 consensus expectation. That disappointment was offset by a greater than expected jump in average hourly wages. The wage measure came in at a 4.4% annualized rate versus the 4.2% expectation. The unemployment rate ticked down to 3.6%. A loosely interpreted rule of thumb is that the economy will continue to grow when more than 200,000 jobs are added per month. The BLS report was especially disappointing when compared to the private ADP jobs measure released on Thursday that showed a whopping gain of 497,000 new jobs. As we have cautioned in the past, seasonal adjustments applied to the BLS measure cause the two reports to deviate from time to time. Also of note, the revision to the previous two months was 110,000 jobs lower.
Halyard’s Weekly Wrap – 6/30/23
/in Weekly Wrap/by halyardThe hawkishness espoused by Chairman Powel last week was repeated on Wednesday and Thursday of this week as Central Bankers from the U.S., Europe, U.K., and Japan gathered in Sintra, Portugal to compare notes on inflation. The remarks offered much more substance than the post-FOMC press conference and Powell’s testimony before Congress.
Halyard’s Weekly Wrap – 6/23/23
/in Weekly Wrap/by halyardHawkishness dominated the conversation this week as Chairman Powell presented the annual state of the economy to Congress. His comments were broadly in line with his post-FOMC comments from last week, with emphasis that the June pause was just that and that the overnight rate is likely to rise further later this year, perhaps even twice. The market took notice, pushing the 5-year Treasury note above 4.0% for the first time since February. Similarly, the April 2024 Fed Fund future traded above 5.00% this week as traders speculated that the overnight rate will remain high into next year.
Halyard’s Weekly Wrap – 6/16/23
/in Weekly Wrap/by halyardChairman Powell must have re-watched the May 3rd post-FOMC press conference and not liked what he saw. Recall that he was called out by CNBC’s Steve Liesman for his tepid answer when questioned about his knowledge of the issues surrounding Silicon Valley Bank. His demeanor at the Wednesday conference was quite the opposite. His first words, delivered in a forceful tone were “My colleagues and I remain squarely focused on our dual mandate…”, as if daring any of the reporters to assume otherwise.
Halyard’s Weekly Wrap – 6/9/23
/in Weekly Wrap/by halyardIn a week devoid of market-moving news, the S&P 500 continued what some are calling a breakout rally. The index is closing less than 1% below the all-time high of 4325 touched last August. The rally is surprising given that the Fed Funds futures market is anticipating at least one more rate hike by the Fed. The Fed has been in their quiet period this week, so traders were forced to speculate on what may have changed in their thinking. As we closed out the week last Friday, Fed speakers seemed divided on another rate hike at the June meeting. They are going to be challenged to make a snap decision as the CPI index for May is released on the morning of their first day of deliberations.