Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
9/29/23 – Rising rates leaves fixed income market the most attractive since 2009
Bonds were under intense selling pressure for most of this week in what could only be described as a delayed reaction to the “higher for longer” message delivered by Chairman Powell last week. The old 2-year note (August 2025 maturity) traded as high as 5.19% before closing the week at 5.11%. The 2-year/30-year yield spread continues to dis-invert, closing the week at -35 basis points.
With the rise in rates, the average mortgage rate hit a 23-year high of 7.31%, up from last week’s high of 7.19%. The rise in the cost of financing a home will offer no solace to the beleaguered housing market.
Economic data for the week was mixed with the confidence surveys and housing data coming in below expectations, but the jobs market continued to show strength.
The various Fed members that spoke during the week echoed Chairman Powell’s comments from last week, saying that another rate hike may be possible while suggesting the possibility of a soft landing for the economy. Minneapolis Fed Governor Kashkari specifically said, “the resilience of the US economy has been surprising”, but he then said that he sees a 40% probability that the Fed will need to raise interest rates further.
Next week kicks off the final quarter of the year and next Friday the BLS will release the September employment report. The number of new jobs created, which has been below 200,000 for seven of the last eight months, is expected to again fall below 200,000. Despite the persistently low initial claims for unemployment insurance the consensus expectation is that only 168,000 new jobs will be added in the month.
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 – 12/23/21
/in Weekly Wrap/by halyardThe week started with the markets panicky that the omicron variant was going to drive the world back into lockdown, but that fear has subsided going into the last trading day of the holiday shortened week. The long bond is challenging the high yield of the month, trading at a yield-to-maturity of 1.90%, but still solidly below 2.0%. Economic data this week, all secondary in importance, continues to point to a robust economy. Investors seem to be turning a blind eye to three projected rate hikes, as the S&P 500 is again within basis points of another all-time high.
Halyard’s Weekly Wrap – 12/17/21
/in Weekly Wrap/by halyardAs expected, Chairman Powell turned “tough” at the post-Open Market Committee meeting this week and announced the accelerated wind-down of the Fed open market purchases. Moreover, the so-called “dot plot”, the committee’s forecast for interest rates, is projecting three rate hikes in 2022 and three more in 2023. We would have preferred to hear that message last January, but Powell failed to take action despite the rise of inflation and accelerating economy.
Halyard’s Weekly Wrap – 12/10/21
/in Weekly Wrap/by halyardTreasury yields drifted higher and stocks closed at or near record highs in somewhat muted trading this week. The price action was a little surprising given the outsized economic data reported. The least watched, but one of our favored measures, the Job Openings and Labor Turnover Survey (JOLTS), counted 11,033,000 available and unfilled jobs in the economy. That was only the second instance that JOLTS topped more than 11 million. The second economic surprise was initial jobless claims for unemployment insurance which counted 184,000 applicants for the week ended December 4th.
Halyard’s Weekly Wrap – 12/03/21
/in Weekly Wrap/by halyardTrading this week was dominated by Chairman Powell’s sudden hawkishness and the November jobs report. The headline nonfarm payrolls came in well below expectation, registering 210,000 new jobs versus consensus expectation of 531,000. That statistic is based on a survey of businesses. The Bureau of Labor also releases an employment measure based on a survey of households and that measure showed a gain of 1.1 million new jobs in the month, significantly above expectations and the polar opposite of the nonfarm farm result. Moreover, the household report showed that 594,000 persons reentered the workforce and, as a result, the unemployment rate fell to 4.2%, down from 6.3% in January of this year and well below the 14.8% rate registered in April 2020.
Halyard’s Weekly Wrap – 11/19/21
/in Weekly Wrap/by halyardAt the press conference following the last FOMC meeting, chairman Powell described the employment recovery as incomplete, leaving market participants to conclude that the then just decided directive to taper open market purchases would be the modus operandi, at least for the foreseeable future. We call that interpretation into question with today’s comments by Vice Chairman Richard Clarida and Fed Governor Chris Waller. In separate speeches they both communicated that the Fed may need to discuss speeding up to pace of taper at the meeting in December.
Halyard’s Weekly Wrap – 11/12/21
/in Weekly Wrap/by halyardWednesday November 10th provided a proverbial “gut punch” to the capital markets. The day started with the inflation report for October that was way above expectations and was capped with a 30-year bond auction that was an absolute disaster. Year over year CPI came in at 6.2% versus the 5.4% registered last month. Fed Chairman Powell continues to believe that the uptick in inflation is going to pass but it’s not happening, and people are not happy about it. In the latest release, energy had an outsized effect on the result, climbing 4.8% month-over-month, but that represents a little over 7% of the total.