Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
10/16/26 – Bond prices rally as Equity Investors question AI valuations
US interest rates continued to fall for the week, but not before witnessing a sharp sell-off Tuesday, following the release of higher-than-expected CPI. Rates sold off initially with 5-year notes touching 5.15% intraday. We have since reversed the sell off and are closing today with the yield curve lower and flatter. 2-year notes are closing the week at 4.72%, lower by 7bps while 5yrs are nearing 4.88% – lower by 14bps. 10-year notes touched an intraweek high of 5.32% and are trading at 5.08% at Friday’s close – 15bps lower for the week.
Equities rolled over as investors questioned the scale of the AI buildout versus the ability of companies to generate sufficient cash flow to earn the return on investment that the market has been anticipating. The S&P 500 index fell 1.96% for the week to end at 7,660 – 2.4% off the October 6th high trade. The Philadelphia Semiconductor Index (SOX) fell 11.4% for the week – off 16% since the October 6th high and 24% lower than the June 24th high. The rise in interest rates and the precipitous increase in off balance sheet customer financing in the AI infrastructure buildout has been the theme pushing investors to rotate out of tech. The bond market benefited from that rotation despite solid economic data and higher than expected inflation on the consumer and producer fronts.
Next week will be quiet on the data front with a focus on housing data, claims, and U of Michigan sentiment. There will be no Fed speakers as the blackout period begins October 17. The next FOMC meeting is October 28th, where we expect the Fed to be on hold – effectively putting off the next rate decision until after the possible conclusion of the Iran conflict and the November mid-term elections.
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 – 09/03/21
/in Weekly Wrap/by halyardThe Bureau of Labor Statistics reported that the U.S. economy only added 235,000 new jobs is August. That was well below the anticipated 733,000 that was the consensus expectation. The immediate question is that number weak enough to convince the FOMC to postpone the tapering of open market purchases. Given the verbal jousting of the various Fed Presidents and Governors over the last few weeks, we conclude that the answer is a solid Maybe.
Halyard’s Weekly Wrap – 08/27/21
/in Weekly Wrap/by halyardPowell turned ever so mildly dovish in his comments to the virtual Jackson Hole Central Bank meeting on Friday. Despite a cadre of Central Bankers calling for an immediate halt to the open market purchases, the Chairman said the Open Market Committee is likely to commence tapering before the end of 2021. We believe the street had set up for more hawkish language, with some looking for an announcement that taper would begin in September. That was a foolish call! While the Fed doesn’t always look to the calendar in making policy announcements, the Chairman had to realize that doing so on the last Friday of August would rock the market. Instead Treasuries traded sideways which was enough to drive the S&P 500 to another record high.