Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
10/24/25 – Summer Doldrums Continue in October
The Bureau of Labor statistics remains closed along with the rest of the government amid the funding shutdown, but certain staffers were recalled to release the consumer price index for September. The index is used to calculate the cost-of-living adjustment for social security had been calculated before the October shutdown.
In addition to CPI, S&P released the various PMI indices and University of Michigan surveys were published this morning. The PMI’s came in slightly better than expected while the U Mich surveys were not so upbeat. The 1-year inflation expectation was unchanged from the last measure, remaining at a troublesome 4.6%. Even more worrying is the 5-10 year inflation expectation that ticked up to 3.9% from 3.7% at the last survey. The consumer sentiment reading in the U Mich survey holds near decade lows. The yield curve was nearly unchanged for the week.
Next week will be a busy one for markets as 176 companies of the S&P 500 index report earnings and the Fed concludes its two-day meeting on Wednesday. Earnings this season have been better than expected, pushing the SPX index through 6,800 to a new all-time high as retail investors ignore the lofty valuations in expectation of accelerating growth.
The consensus view is that the FOMC will announce a cut to the Fed Funds rate by 25 basis points on Wednesday. The whisper on the street is that they’ll also terminate their quantitative tightening operation. In doing so, the net effect should be somewhat bullish for Treasury Bonds at the margin. We expect that the Chairman will be peppered with question about the dearth of economic data and how they intend to guide monetary policy during the shutdown. Given that he tends to avoid politics at all costs, we expect him to be evasive on the subject.
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 – 09/16/22
/in Weekly Wrap/by halyardThe best that can be said about this week, from a business perspective, is it’s over. Traders came into the week optimistic with hopes sustained from the August employment situation. We anticipated that the CPI would finally show a downtick and the relentless pressure on interest rates would finally moderate, but that did not come to pass. Instead, CPI printed an unwelcome uptick across most categories and reinforced the need for higher interest rates. While the Fed sat on the sidelines post-report, bond traders acted decisively, pushing the 2-year note 20 basis points higher on the day, ultimately ending the week 32 basis points higher.
Halyard’s Weekly Wrap – 09/09/22
/in Weekly Wrap/by halyardWith regard to the Fed’s action on overnight rates, our plan was to watch how consumers reacted to the July rate hike as summer progressed. We expected that high gas prices along with broad based inflation would slow consumer demand enough that the Fed would, at the very least, moderate further rate hikes, possibly even pause for a meeting or two. Instead, the Fed, via the Wall Street Journal, communicated this week that another 75-basis point hike is likely when it meets on September 21st. The various members of the Open Market Committee have all aligned as hawkish and have left open the possibility of another 75-basis point at the November meeting. That would push the overnight corridor to 3.75% to 4.00% by November 2nd. In previous communications the Fed suggested that the target rate was 3.5%, so 4% would be somewhat restrictive.
Halyard’s Weekly Wrap – 09/02/22
/in Weekly Wrap/by halyardEconomic data this week offered a reprieve from the recent trend of weak indicators. This morning’s employment report for August was especially cheering. Economists had been looking for the economy to add 298,000 jobs in the month, following last month’s 528,000 add. We were skeptical that August would follow with an above trend outcome, but we were proved wrong by a print of 315,000 new jobs. Ironically, bond prices rallied across the curve on the news in a case of “sell the rumor, buy the fact.” Earlier this week whisperings of an outsized employment report began to circulate. Anticipating that possibility, the two-year note yield touched 3.50% with the thirty-year yield topping out at 3.36%.
Halyard’s Weekly Wrap – 08/26/22
/in Weekly Wrap/by halyardThe economic data this week continued to portray a deceleration in the economy, but the most anticipated highlight was Chairman Powel’s comments at the Jackson Hole Symposium. We’ve always had a distaste for the symposium. We view it as a Davos-like affair, attended by an elite group that considers themselves above their constituents. To us, that sends the wrong message about the mission of the Central Bank. Especially given the mess the Federal Reserve has created with excessively easy monetary policy.
We’d describe the speech as being saccharine-like in the in description of the current inflationary impulse. The speech didn’t follow the post-FOMC press conference structure in which a question & answer period followed. Because of that, there were whispers that Powell would offer a mea culpa to the mess that he oversaw, but that was not to be. Instead, he painted a “Pollyanna” picture of the current state of affairs. Of that, there were 3 “jaw dropping” quotes that we need to bring to your attention. They are, in chronological order of their mention in the speech, “The absence so far of broad-based inflation pressures,” “longer-term inflation expectations have moved much less than actual inflation…suggesting that households, businesses, and market participants also believe that current high inflation readings are likely to prove transitory,” and finally, “Today we see little evidence of wage increases that might threaten excessive inflation.”
Halyard’s Weekly Wrap – 08/19/22
/in Weekly Wrap/by halyardEconomic data released on Monday showed weakness in manufacturing in the New York region and continued slowdown in national housing activity as seen in the national association of home builders index, housing starts and building permit data. This led to short covering of trades betting on higher interest rates. The short covering was temporary as industrial production and core retail sales surprised slightly to the upside. Economists were looking for signs that the slowdown in housing and high and persistent inflation was weighing on spending. Stripping out auto sales and gasoline, retail sales posted a decent month. The headline, which includes autos and gas sales was flat month over month. CPI for July was also flat month over month, which indicates, that the consumer is buying less gasoline and motor vehicles while spending more on other goods and services. There was also a sharp uptick in non—store retail sales (online shopping). The take away is that high inflation has caused some demand destruction in certain categories but overall, the consume held up.
Halyard’s Weekly Wrap – 08/12/22
/in Weekly Wrap/by halyardThe doldrums are finally upon us! Last Friday’s strong employment report assured worried investors that two straight quarters of economic contraction wouldn’t result in a “hard landing” and this week’s CPI offered hope that the inflation impulse has passed. With that, investors can relaxed and enjoy the last few weeks of summer.
The 0.00% monthly change in inflation was a welcome reprieve from what we’ve witnessed for nearly two years now. But we’re hesitant to declare victory in the Fed’s war on inflation. There’s still an enormous amount of excess liquidity in the system and the Fed’s quantitative tightening has been slow to drain the excess. The Fed’s reverse repo operation, the de facto add-on to the Treasury Bill market, totaled $2.199 trillion at Thursday’s operation, just a few billion below the peak reached earlier this year. And the T-Bill market itself continues to flash warning signs, with yield levels well below the overnight rate and bid/ask spreads of as much as 11 basis points, in some cases. Raising interest rates will slow some interest sensitive sectors, such as home and automobile sales, but the Fed needs to drain liquidity and they’ve barely scratched the surface.