Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
07/31/26 –
At the post-FOMC press conference Kevin Warsh surprised investors with his lack of commitment, either hawkish or dovish, in his comments to reporters. Since assuming the role as chairman two months ago, his comments have been decidedly hawkish. In an unofficial survey prior to the meeting about 20% of those surveyed were expecting a surprise rate hike. Warsh has mentioned on numerous occasions that inflation was running too hot for his liking. Despite those public comments there were only 3 members of the committee that voted for a rate hike.
In his press conference he made several contradicting statements that left everyone a bit confused. Specifically, when asked if the recent rise interest rates was an indicator that the Fed should raise the overnight rate, he “waffled” and suggested that it was in response to better than expected economic news of late. When asked about the next move in rates he completely demurred, which left the questioners, and us, a bit baffled. He has explicitly said that he intends to use the overnight rate as the primary policy tool, but if he’s of the opinion that inflation is too high, then the overnight rate is too low.
Bond investors initially cheered with the 2-year note rallying to close the day at 4.27% after touching 4.32% earlier in the morning. The market is giving some of that back, with the 2-year/30-year yield curve closing the week at 99 basis points, 10 bps wider than where it was earlier in the week.
With so much focus on the Fed, the headline advance GDP report was largely ignored. The Bureau of Economic Analysis estimates that Q2 GDP grew at a l.5% annualized rate, materially below the 2.0% expectation. However a closer look at the underlying details softens the headline number. Private domestic final purchases (PDFP), the cleanest look at how much Americans are buying, rose to 3.9% over the first quarter. The difference between the total GDP and the PDFP was mainly attributable to the widening trade deficit and inventory destocking detracting from growth.
Released along with GDP was the inflation component of the report. That showed that core PCE price index rose 3.4% annualized, down from 4.4% recorded in Q1, but still above the 2% target quoted by the FOMC.
Next week brings the employment report for July. The consensus is expecting the BLS to show that 86,000 new jobs were added in the month, better than the 57,000 added in June but slightly below the 3-month average of 98,600.
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 – 6/21/24
/in Weekly Wrap/by halyardA mid-week U.S. holiday, summer vacations, and noisy economic data all led to mostly unchanged bond and stock markets this week. For the week, the 2-year/30-year yield curve was 2.5 basis points less inverted, closing the week at -33.5 basis points, with the entire move coming from a marginal drop in the yield-to-maturity of the 30-year bond. The S&P 500 briefly traded into record territory but is closing the week about 1% off of the 5,505.53 record touched on Thursday.
Halyard’s Weekly Wrap – 6/14/24
/in Weekly Wrap/by halyardThe consumer price index (CPI) for May was released Wednesday, the morning of the FOMC meeting. The one-month change to the index was 0.0% and the headline year-over-year index rose 3.3%, a 0.1% improvement over last month’s reading. Investors interpreted the change as a big step in the right direction and rallied stocks and bonds, pushing the yield curve down to recent lows and the S&P 500 to a fresh all-time high.
Halyard’s Weekly Wrap – 6/7/24
/in Weekly Wrap/by halyardThe investment community, lately, had bought into the narrative that the economy is slowing, and that the Fed was about to reengage in the rate cut conversation. The May employment report, released this morning, fully took the air out of that notion. After April’s report came in below expectation, economists were expecting the number of new jobs created for the month would total 180,000, with the low estimate at 120,000 and the high at 259,000. The actual number blew past those forecasts with 272,000 new jobs created in the month. The report was a little messy in that the household report showed a contraction of -408,000 jobs and the labor force shrunk by -250,000 workers causing the unemployment rate to tick up to 4.0%. We advise to look past that uptick due to a few nuances between the household and the establishment survey. The bottom line is the June jobs report changes the soft-landing narrative and further postpones the likelihood of a rate cut anytime soon.
Halyard’s Weekly Wrap – 5/24/24
/in Weekly Wrap/by halyardThe release of the May 1st FOMC minutes was as expected, with the members concurring that the rate of inflation is stubbornly stuck at levels above which they are comfortable. The second sentence of the minutes read “Domestic data releases over the intermeeting period pointed to inflation being more persistent than previously expected and to a generally resilient economy,” That’s pretty much says it all. The economy continues to hum along despite the FOMC’s tightening of monetary policy. A Few economists continue to rumble that the Fed will need to again hike the overnight rate but that’s far from consensus.
Halyard’s Weekly Wrap – 5/17/24
/in Weekly Wrap/by halyardThe April consumer price index and the various subcomponents came in as expected offering relief to investors fearful of an upside surprise. The year-over-year headline measure showed that inflation cooled to 3.4% from the 3.5% reported in March. The change in direction was welcome news to the capital markets but the incremental improvement is hardly enough for the Fed to claim victory. There’s an old saying in the capital market “that one number does not make a trend” and that clearly applies to last month’s CPI. We’ll be watching the index through the summer to identify any potential trend.
Halyard’s Weekly Wrap – 5/10/24
/in Weekly Wrap/by halyardAfter last week’s repricing of the yield curve to again reflect the possibility of one rate cut this year, the interest market barely moved this week. The dearth of economic data allowed the 2-year/30-year yield curve to remain at a 20-basis point inversion with the 2-year notes closing the week modestly higher at 4.86%. That was good news for the equity market as the S&P 500 continued to rally and now stands less than 1% away from its all-time high as earnings releases dwindle to a trickle.