Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
05/15/26 – Equity prices fade as market focuses on higher interest rates
We get the sense that the market was looking for some tangible outcome from the meeting between President’s Trump and Xi and disappointment in the lack thereof rippled through the markets today. The 2-year note had been under upward pressure all week but finally broke materially higher this morning. The 2-year is closing the week at 4.07%, the highest level since last summer.
The equity market finally took note of the rising yield curve as the S&P 500 retreated from the all-time high touched yesterday, falling as much as 1.3% intraday today. The index has mounted a ferocious rally, rising nearly 19% since hitting its year-to-date low of 6,316 at the end of March.
Economic data released this week was not supportive of another cut in Fed Funds. The headline consumer and producer price indices were both above expectations, and while they are being pushed higher by rising energy costs, the concern is that inflation is at risk of broadening into the wider economy. Similarly retail sales for April registered better-than-expected with the control group rising 0.5% MOM and the previous month revised 0.1% higher to 0.8% in a sign that consumers continue to spend despite the rising cost of gasoline. With gas above $4.50 a gallon nationally we’ll be watching to see if that spending holds up.
Next week will see the release of housing data for April and we don’t expect it to be good news. The forecast is for a -5.1% drop in housing starts for the month. With the average mortgage rate climbing to 6.5%, what is normally a robust spring housing market is looking more like a bust.
On Monday Kervin Warsh starts his first day as Fed Chairman. Reviewing the Fed speech calendar, he is first scheduled to speak to the public at the conclusion of the June 17th FOMC meeting. We wish him much luck navigating this challenging economy!
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 – 04/29/22
/in Weekly Wrap/by halyardLast week we flagged the advance report of Q1 GDP as the economic report to watch this week, and we were spot on. Investors were shocked to learn that economic activity contracted 1.5% in the first quarter, driven primarily by trade and government spending. On the bright side, the consumer continued to spend, with the personal consumption measure rising 4.7% over Q1 2021. But a big expansion in imports and reduced government handouts were more than enough to offset the gain in consumption.
Halyard’s Weekly Wrap – 04/22/22
/in Weekly Wrap/by halyardThe invisible hand versus the Fed Chairman wearing the big wooden clogs. That could best describe the comparison of the Volker Fed versus the Powell Fed. Ironically, Chairman Powell, along with uber-dove, ECB Chair Christine Lagarde, spoke at a panel discussion hosted by the Volker Alliance on Thursday. The recently turned hawkish Powell confirmed that the Fed was prepared to raise the overnight Fed Funds rate by 50 basis points…when it meets nearly two weeks from today. Moreover, he strongly suggested that the committee is likely to raise the overnight rate by another 50 basis point when they meet on June 15th.
Halyard’s Weekly Wrap – 04/07/22
/in Weekly Wrap/by halyardThe minutes of the recently concluded FOMC meeting are rarely of interest since the Fed adopted the post-meeting press conference during Chairman Bernanke’s term. Since then, Fed Chair’s have chosen to communicate the committee’s thinking at the post-meeting press conference. Chairman Powell didn’t follow that pattern at the March 15 meeting as the minutes contained “bombshell” information. Two days ago Fed Governor Brainard rocked the markets with her comments that the Fed was ready to begin to reduce its balance sheet. That was confirmed yesterday when the minutes loosely detailed how balance sheet reduction was to be implemented.
Halyard’s Weekly Wrap – 04/01/22
/in Weekly Wrap/by halyardThe brutal bear market in bonds continued this week, with the two-year note 108 basis points higher than where it stood on March 1st. Following a solid non-farm payroll report, two’s are 9 basis points higher for the first day of April. As a result, the 2-year/30-year yield curve is now marginally inverted, which is likely to provoke recession fears. Historically an inverted yield curve signals a recession ahead. We think the selling is getting overdone, but are reluctant to extend duration until we see some stability in the market.
Halyard’s Weekly Wrap – 3/25/22
/in Weekly Wrap/by halyardThe vicious bear market in bonds that began last fall continued this week with the 2-year Treasury note touching 2.33% this afternoon. Recall that the 2-year note closed last week just below 2.00%. Fed speakers were again the driver of the selloff, strongly suggesting a 50 basis point hike at the May 4th FOMC meeting and potentially another 50 basis point at the June 15th meeting. Citibank is forecasting four 50 basis point hikes this year, while Goldman Sachs is expecting that the 2-year note will end the year at 2.90%. Those forecasts and retail liquidation of their fixed income holdings is behind the relentless selling. Ironically, equity investors seem to be unfazed by the sharp selloff in fixed income. Since hitting the low for the year in late February, the S&P 500 index has rallied nearly 10%.
Halyard’s Weekly Wrap – 3/18/22
/in Weekly Wrap/by halyardAll eyes were on the FOMC outcome this week. As expected, Powell and the FOMC raised short term interest rates 25bps to a range of 25ps to 50bps. Market participants interpreted the accompanying statement and Powell’s post meeting comments as decidedly hawkish. This flattened the US Treasury curve further, with an inversion seen in 3 year US Treasury Notes and 5 year Notes exceeding the yield to maturity of the 10 Year Note. A signal usually portending slower growth in the future as interest rate increases slow sectors of the economy most dependent upon leverage.