Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
06/26/26 –
The first full day of summer ushered in a week of market doldrums, with secondary economic data showing the economy continues to expand, albeit at a modest pace. New home sales fell 7.3% in May from the previous month, but that abysmal result was offset by personal spending which rose 0.7% in the month. The third look at Q1 GDP showed a surprising revision from 1.6% annualized growth to 2.1%. With the conclusion of the second quarter next week, the Atlanta Fed GDP Now measure is forecasting Q2 is going to show 2.54% growth.
Despite the subdued mood, two high profile corporations issued mega sized deals. Nvidia and SpaceX both came to market with $25 billion deals with maturities across the curve. The initial price talk for the SpaceX deal was 140 basis points over the comparable Treasury 5-year note. Demand was so immense that the spread contracted to 110 basis points at pricing time. Those investors that enthusiastically bought that debt were soon to regret the purchase as the 5-year SpaceX paper is closing the week at a spread of approximately 120 basis points.
The sharp contraction in the yield curve seen last week reversed somewhat this week with the 2-year/30-year spread widening to 78 basis points, roughly 10 basis points wider from the close of last Friday. The equity market also drifted this week with the S&P 500 roughly 1.75% lower on the week.
Next week the employment report will be released on Thursday as the Independence Day holiday is observed on Friday. The expectation is for 125,000 new jobs added, basically unchanged from the 120,000 jobs created in the prior month. Also worthy of watching, Chairman Warsh is scheduled to participate in a panel discussion at the ECB forum along with Central Bank heads form Europe, England, and Canada. Notably, there will be a Q&A session to follow. This will be the first public comments by Warsh since last week’s post-FOMC press conference.
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 – 06/17/22
/in Weekly Wrap/by halyardAs we wrote last week, the May inflation report and the University of Michigan consumer sentiment surveys were worrisome indicators. So much so that on Monday the Fed leaked news to the media that they were going to raise rates 75 basis points at the coming meeting, instead of the 50 they’ve signaled since the May meeting. Chairman Powell admitted as much at the post-FOMC press conference. In addition to that hawkish turn, the committee further communicated that they expect the overnight rate to end 2022 at 3.4% and end 2023 at 3.8%. Moreover, to drive home his transformation from Trump lapdog to Volker incarnate, he later said that his commitment to reining in inflation was “unconditional.” Presumably, that means that he doesn’t care how the equity market reacts. We’re not fully convinced of that commitment, but time will tell.
Halyard’s Weekly Wrap – 06/10/22
/in Weekly Wrap/by halyardPresident Biden and the members of the Federal Reserve were hoping against hope that this morning’s CPI report would come in below expectations, but to no avail. In fact, each and every one of the economic releases communicated bad news to our leaders. The headline year-over-year CPI came in at 8.6% versus the consensus estimate of 8.3%, and the ex-food and energy tally came in at 6.0%, a touch above the survey estimate of 5.9%. Later in the morning the University of Michigan consumer survey offered no better news. The overall sentiment tally plunged to 50 versus last month 58, and the inflation component for the coming year ticked up to 5.4%. That’s a clear message to Messrs. Biden and Powell of no confidence. The reaction out of the markets was as expected with Stock indices getting crushed. Several intrepid market analysts said earlier this week that the stock market could be close to a bottom, but they’re eating their words today as the S&P 500 is only 100 points away from its recent low.
Halyard’s Weekly Wrap – 06/03/22
/in Weekly Wrap/by halyardInvestor consensus reversed sharply this week, from the opinion that the Fed would hike twice then pause, to the Fed needs to hike at every meeting until reaching 3.0%. Evidence of the change can be found in the 17 basis point rise in the yield of the two-year note, which is now about 10 basis points below the high of the year.
While the economic data was generally mixed for the week, with the exception of the print on the May employment report, we attribute the consensus change to the meeting between Chairman Powell and President Biden, and comments from the JP Morgan CEO.
Halyard’s Weekly Wrap – 05/26/22
/in Weekly Wrap/by halyardBond prices continued to rebound this week with the front end out performing. The yield to maturity on the 2 year US Treasury Note declined another 10bps to 2.49% while the yield on the 30 year Bond remained the same at 2.99%. The steepening of the yield curve is the result of participant’s expectation of slower growth and lower inflation going forward. The chart below shows that participants removed future expected rate hikes over the course of the next year – effectively recalibrating the terminal fed funds rate lower. The mid-month equity swoon and the string of earnings misses added to the bullish sentiment in the front end.
Halyard’s Weekly Wrap – 05/20/22
/in Weekly Wrap/by halyardThrough April, the capital markets took the Fed’s hawkish tone as a welcome antidote to stubbornly high inflation. But as we move further into the year, that mindset has reversed. Driving the change is the barrage of weak earnings reports we’ve seen over the past two weeks, and specifically retail earnings. Amazon, Walmart and Target were the worst of the category, all having their stock price fall by more than 20%. The overriding culprit has been rising costs of goods sold cutting into their bottom line. That was more than enough to undercut the fledgling return of investors confidence we saw as we closed out last week. For this week the S&P 500 is down more than 4% and trading at its lowest level since March 2021.
Halyard’s Weekly Wrap – 05/06/22
/in Weekly Wrap/by halyardChairman Powel left the first in-person FOMC press conference in two years as a G.O.A.T. (greatest of all time), according to the investment media and suffered the fate of a spring lamb the very next day. For those unfamiliar with the term “spring lamb,” myself included, it’s a lamb slaughtered before it reaches its first birthday. Apologies for the grim analogy. On Wednesday investors were delighted that Powell had driven home the point that a 75 basis point rate hike was not forthcoming and cheered by his general tone of confidence. However, by the next morning the relief had been replaced by anxiety that stagflation is on its way, stock prices are too high and the yield curve too flat. From the Wednesday’s high to the Friday low, the S&P 500 tumbled more than 5.5%. Equally vicious was the selloff in the 30-year. On Thursday, the long bond fell nearly 3 ½ points before retracing about half of that by the close. To put that price action into perspective, the current long bond (2 ¼% 2/2052) is trading at a price less than 82, down from its issue price of 100 in February. The yield-to-maturity calculates to 3.20%, offering a real return of about -5.00%. Moreover, with the latest selloff, the 2-year/30-year yield curve has steepened 51 basis points since April 1st. Typically, the yield curve steepens when market participants believe the Fed is losing the inflation battle.