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 – 08/05/22
/in Weekly Wrap/by halyardWe didn’t see that coming! On the back of the mixed June employment report, the July tally blew past all expectations. Coming in at 528,000 new jobs added, the report more than doubled the consensus expectation of 250,000 and exceeded the highest expectation of 325,000. Moreover, the details were equally eye popping, with average hourly earnings up 5.2%, year-over-year, and the unemployment rate ticking down to 3.5%, equaling the low touched on September 2019. The bond market didn’t like any of it. The yield curve that placidly drifted below 3% last week, convulsed back above that measure today. For the week, the 2-year note is 30 basis points higher, and the 2-year/30-year interest rate spread went negative for the second time this year, closing the week out decidedly inverted at -17 basis points.
Halyard’s Weekly Wrap – 07/29/22
/in Weekly Wrap/by halyardAccording to Morgan Stanley “2Q data would mark a technical recession, not an economic one”. The Wall Street firm had forecast that Q2 GDP would come in at +1.0 annualized, so they needed an excuse for their wide miss. In fact, the print was -0.9%. Economic 101 teaches that two consecutive quarters of economic contraction are a recession. Despite that, the Biden administration is saying that it’s not a recession, and points to the jobs market as proof. We agree that the jobs market remains quite healthy, but there’s more to GDP than simply income.
Halyard’s Weekly Wrap – 07/22/22
/in Weekly Wrap/by halyardFrom an economic perspective, this has been a terrible week; especially so for the housing sector. The NAHB housing index, housing starts, and existing home sales all plunged, as did mortgage applications. The earnings release from D.R. Horton, the home builder, beat expectations, but the company said that sales are expected to slow, and cancelations rise as buyers are experiencing “payment shock.” After falling a quarter point last week, the average 30-year mortgage rate ticked back up to 5.625%, giving pause to perspective buyers.
Halyard’s Weekly Wrap – 07/15/22
/in Weekly Wrap/by halyardFront end interest rate volatility remained elevated this week, with the market adding an additional 25bps increase in Fed funds post the record CPI print – January 2023 Fed Fund futures traded at a 3.49% rate a week ago, touched a 3.74% Thursday morning only to settle back to 3.50% by Friday afternoon. The shockingly high CPI print has been tempered by softer data. Headline retail sales point to a consumer muddling along – combatting higher energy prices by buying less elsewhere. The exceptions are restaurants, a slight bounce in vehicles and strength in online shopping. Overall real retail sales have fallen two months in a row. University of Michigan surveys released Friday showed a slight uptick in sentiment following June’s abysmal readings and also a slight downtick in longer term inflation expectations. The relief rally – data dispels fears of 100bps rate rise – leaves stocks up 1.7% on the day and off just 1% for the week.
Halyard’s Weekly Wrap – 07/08/22
/in Weekly Wrap/by halyardFed Governor Chris Waller “tipped his cards” on Thursday regarding this morning’s employment report, saying the “Robust labor market” gave him confidence in the strength of the economy. The report showed that the economy added 372,000 new jobs in June, well ahead of the 265,000 that was expected. Given the anecdotal weakness we’ve been witnessing, our expectation was that the jobs figure would disappoint. His comment on jobs was in addition to him saying that he favored another 75- basis point hike later this month. That rate hike recommendation was echoed by St. Louis Fed President James Bullard, and both are voters on the rate decision committee.
Halyard’s Weekly Wrap – 06/24/22
/in Weekly Wrap/by halyardAs if the investing environment couldn’t be more challenging, this week only served to further muddy the water. Fed Chairman Powell testified before Congress in what was once referred to as the Humphrey-Hawkins testimony. The testimony is mandated twice a year and the Chairman is tasked with justifying his dual mandate of keeping unemployment and inflation low. His testimony was mostly comments Congressmen don’t want to hear. Namely, acknowledging that rising interest rates poses the risk of a recession, and that the employment market is running “too hot.” In the perverse thinking of bond investors that was good news. The logic goes that If the Fed Chairman is thinking that the coming rate hikes could result in a recession, then that means that inflation will be coming down faster than they had hoped and, therefore, rates will need to be cut sooner than anticipated. Taking their cue from bond investors, the stock jockeys interpreted that logic as a signal to buy, hence the 6% rise in the S&P 500 off the low touched last week. Notably, Powell didn’t say anything at the testimony that would indicate that the committee has changed their mind about raising rates another 75 basis points at the end of July.