Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
12/05/25 – Will the FOMC deliver the Santa Claus Rally?
A combination of recent and stale economic data continued to trickle out this week, painting a mostly status quo state of the economy.
The November ISM manufacturing survey came in at 48.2, below the 49.0 expectation and below the 50 breakeven, indicating a slowing in manufacturing, while the ADP employment change showed a 32,000 contraction in jobs: a warning that the employment picture may still be deteriorating. Contradicting that were the initial claims and the continuing claims for unemployment insurance, both of which narrowed last week. The jobs report, which is released on the first Friday of every month, is postponed until December 16th. However, the most recent University of Michigan surveys that were released at 10:00 a.m. this morning were mixed. Current conditions ticked lower while expectations rose to 55.0, an encouraging sign. Also encouraging are the 1-year inflation expectations, which fell from 4.5% to 4.1%. Maybe it’s the holiday season that’s improved the mood of the surveyed – or perhaps the end of the government shutdown and a rebound in equity valuations.
With that limited insight into the current state of the economy the Open Market Committee will meet next week to determine whether to again cut the overnight interest rate or leave monetary policy unchanged. We’re split as to what they will do. On the one hand, anecdotally, it feels as though the jobs market has softened, despite initial claims. On the other hand, quantitative tightening ended on December 1st, and with changes in SALT, tax policy should be somewhat stimulative early next year. Further complicating the decision is that it looks like there could be four dissenters voting to keep the rate unchanged. That’s going to send a mixed message to the market.
With that said, the market is sending a clear message that another 25-basis point cut is coming. The three-month T-Bill plunged from 3.84% last Friday to 3.66% today. Long bond investors weren’t as enthusiastic at the prospect of easier money, with the 30-year 13 basis points higher in yield. Equity investors, along with the 2-year note buyers, are optimistic about the prospect of another rate cut with the S&P 500 less than 1% away from a new all-time high.
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 – 01/27/23
/in Weekly Wrap/by halyardFourth quarter GDP registered 2.9% annualized growth, beating the 2.6% expectation, but as is often the case with economic data, the devil is in the details. The growth was driven by rising inventories, government spending, and softening imports. The weakness in imports is mostly due to the Chinese covid quarantine and the resultant slowdown in production. With the Chinese factories humming again, we expect that net imports will revert to being a drain on GDP in the first quarter. Similarly, inventories added nicely to the headline number but that is also likely to flatten this winter. The biggest disappointment in the release was private final domestic demand. The measure of how much Americans wanted to consume fell from 1.1% in Q3 to 0.3% in Q4. That’s a significant slippage in demand, which jibes with the disappointing retail sales registered in the last two months of 2022.
Halyard’s Weekly Wrap – 01/20/23
/in Weekly Wrap/by halyardThough it was a holiday shortened week in the U.S., there was plenty of action in the markets. The most significant market-moving news was the Retail Sales report for December. Recall that November retail sales were disappointing, worrying analysts that the holiday selling season was going to be a bust. That worry proved prescient! Retail sales for November were revised down from -0.6% to -1.0% from the October level. On Wednesday the government reported that December retail sales fell -1.1% from the revised November figure. Parsing through the details, the weakness was broad-based, with sales at department stores falling a shocking 6.6% from November’s level.
Halyard’s Weekly Wrap – 01/13/23
/in Weekly Wrap/by halyardThe December CPI report released on Thursday was a pleasant surprise for investors. The headline CPI fell -0.1% month-over-month, and the year-over-year measure fell to 6.5% from 7.1% the previous month. Core CPI, the measure that excludes food and energy, rose 0.3% over the previous month, a slight uptick from the 0.2% previously reported. Core CPI has fallen to 5.7% year-over-year from the peak of 6.6% reported last September. The market breathed a sigh of relief as witnessed by the massive rally in the long bond on the day of the release, closing nearly two points above the previous day’s close. We suspect that much of the rally was driven by short covering, driving the yield-to-maturity down below 3.6%. At that yield level it’s hard to justify buying from a fundamental perspective.
Halyard’s Weekly Wrap – 01/06/23
/in Weekly Wrap/by halyardToday’s bond market action is not what one would expect given the release of the December jobs report. The report showed the economy created 223,000 new jobs, again exceeding the 203,000 that was expected. Parsing further through the report, the unemployment rate fell to 3.5%, a record low, and the participation rate increased, meaning that more people joined the workforce and even more of them found work. At first glance, this is not the outcome that the Fed was hoping for. They are trying to cool the economy and the employment situation is actually further heating it up. But bond traders chose instead to focus on the Institute for Supply Management (ISM) Services survey.
Halyard’s Weekly Wrap – 12/23/22
/in Weekly Wrap/by halyardWe had a feeling the government economists wouldn’t let 2022 get away without a little post-FOMC volatility. A summation of the economic releases this week is that the housing market stinks, inflation continues to be a problem, and consumer confidence ticked up last month. We’re skeptical of that last point. Both the Conference Board and the University of Michigan showed an uptick in confidence despite the continued array of layoff announcements. Our conclusion is that the uptick is directly correlated to the drop in gas prices and nothing more.
Halyard’s Weekly Wrap – 12/16/22
/in Weekly Wrap/by halyardAs expected, the Federal Reserve and the European Central Bank both raised overnight interest rates this week, and both delivered a hawkish prepared statement but softened the language in the post-conference press conference. At the press conference Powell said that rate-hike speed is no longer the most important question, now that the top of the Fed Funds target range is 4.5%. We interpret that as meaning that the days of 75-basis point hikes are behind us and that the possibility of a pause at the February meeting is now possible. Christine Lagarde also communicated that another 75-basis point hike is unlikely, but with the ECB overnight rate sitting at 2.5%, she is not likely to garner the same inflation-fighting stature as Powell.