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 – 10/28/22
/in Weekly Wrap/by halyardLast week’s Fed leak that they would consider slowing the trajectory of rate hikes at the November 2nd FOMC meeting continued to dominate trading this week. Consensus seems to be developing that the recent softening of economic data will force them to temper their hawkishness and will raise the overnight rate 75 basis points next week and another 50 basis points in December. Reflecting that, the 5-year note fell to 4.06% before closing the week at 4.18%, on the back of a stellar auction on Wednesday. The auction cleared at 4.192%, through the presale when-issued yield of 4.21. The bid to cover rose to 2.48 times versus 2.27 times at the last auction, indicating that demand was high
Halyard’s Weekly Wrap – 10/21/22
/in Weekly Wrap/by halyardA Wall Street Journal story released this morning suggested the Fed would raise rates by 75 basis points at the November FOMC meeting but would then evaluate the need and magnitude of a December rate hike. The market had been anticipating 75 basis point hike at each of the meetings. As we’ve seen in the past, most notably in June when the Fed leaked that they intended to raise rates by 75 basis points, the Fed will leak their intentions in an effort to prepare the market for a change. Whether it was a deliberate signal or cover for St Louis Fed President Bullard’s ethical gaffe, the market heard it loud and clear. The two-year note fell 14 basis points on the day as did Fed Fund futures. The peak in Fed Fund futures continues to be May 2023.
Halyard’s Weekly Wrap – 10/14/22
/in Weekly Wrap/by halyardThere was precious little for the Fed to celebrate this week. The all-important employment report has been relegated to second tier status as the producer and consumer inflation measures take center stage as the most important measure of the Fed’s success, or as is the case in this week’s report, failure. Both measures came in above expectations and didn’t really offer any indication that the rate hikes to date have been successful. The markets reacted mostly as expected. The 30-year bond, after a brief short covering rally on the day of the CPI release is closing the week just a basis point below 4.00%. Similarly, the 2-year note is closing the week at 4.50%. Fed Fund futures reset materially higher, with the May 2023 contract indicating a peak Fed Funds rate of 4.935%.
Halyard’s Weekly Wrap – 10/07/22
/in Weekly Wrap/by halyardHigher rates for longer was the concise message out of the Federal Reserve this week. After an attempt at rallying on Monday, both stock and bond prices rose with quarterly rebalancing and short covering, markets again succumbed to the Fed’s message by the week’s end. The S&P 500 finished up 5.5% higher by Tuesday evening and the yield to maturity on the 2 year US Treasury Note finished lower by 17bps to close October 4th at 4.09%. The rallies were driven in part by the 3rd shot at a narrative that encompasses a central bank on the cusp of slowing the pace of rate hikes.
Halyard’s Weekly Wrap – 09/30/22
/in Weekly Wrap/by halyardChaos erupted overnight Sunday in the U.K. as investors reacted harshly to announced tax cuts and sent Gilt interest rates soaring. The U.K. is besieged with a similar inflation problem as the rest of the world and the proposed tax would likely worsen rising prices. By Tuesday morning the 10-year note was a full 100 basis points higher in yield before the Bank of England announced that they would intervene and buy Gilts. After all was said and done, the U.K. 10-year ended the week 20 basis points lower at 3.81%, but not before “dinging” the U.K. government’s willingness to fight inflation at whatever cost.
Halyard’s Weekly Wrap – 09/23/22
/in Weekly Wrap/by halyardAs was expected, the Fed raised the overnight lending rate corridor by 75 basis points, to 3.0%-3.25% and in decidedly hawkish post-meeting press conference, the Chairman signaled that they are not yet close a peak in the rate. It was communicated that Fed funds would likely end the year at 4.25%. That news rocked the Treasury market with the 2-year note closing the week 32 basis points higher at 4.19%, just off the intraweek high of 4.25%. The yield curve further inverted, closing at a -57 basis points, just a shade below the -75 basis points touched in May 2000.