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 – 5/3/24
/in Weekly Wrap/by halyardInvestors began this week with much trepidation, given the mixed economic data and stubbornly high inflation that has characterized the first four months of this year. It was widely expected that Powell would offer a “mea culpa” for suggesting that rate cuts were imminent back in December. He didn’t go quite that far but did opine that the committee was “less confident” that inflation would fall to 2% in the near term. But he also cast doubt on the possibility that the next move in interest rates would be a hike.
Halyard’s Weekly Wrap – 4/26/24
/in Weekly Wrap/by halyardOn the back of strong retail sales in the last three months we were expecting that the first pass of Q1 GDP would come in above expectations. When the results were released yesterday, the tally fell well below the 2.5% consensus expectation, showing that annualized growth slowed to 1.6%. Digging through the details yielded a mixed conclusion. Personal spending, the main driver of growth, rose 2.5%, below the 3% consensus expectation, but still supportive of the view that consumers continue to spend.
Halyard’s Weekly Wrap – 4/19/24
/in Weekly Wrap/by halyardThe red-hot economic data continued this week with the release of March Retail Sales. The report showed that retail sales rose 1.1% over the previous month, more than double what was expected. February retail sales were revised to a 0.6% monthly gain from the 0.3% that was first reported. The gains were broad based and have some economists thinking that the Q1 GDP forecast may be too low. The estimate last Friday was for 2.1% growth, but the consensus thinking as of this morning is 2.5%.
Halyard’s Weekly Wrap – 4/12/24
/in Weekly Wrap/by halyardIf you’re thinking there has been a sea change in expectations this week, it’s because there has been. The March Consumer Price Index slammed the door on any hopes of a near-term rate cut with the year-over-year core CPI rising 3.8%. The CPI seems to have settled in at the 3.8% annual rate which is a level that is too high for the Fed to cut interest rates anytime soon. Reflecting that, many of the “Street” economists have withdrawn their forecast for a June rate hike and the possibility of two additional cuts this year and have now taken the safe forecast of one rate cut this year coming at the December meeting. Indeed, the Fed Fund futures have priced in a singular rate cut in the December contract.
Halyard’s Weekly Wrap – 4/5/24
/in Weekly Wrap/by halyardThe Bond market continued to reprice the yield curve this week. Driven by economic data that showed the US economy is still firm despite higher interest rates. Manufacturing and Service surveys indicated expansion – the first such reading for Manufacturing since September of 2022. On Friday, the Non-farm payroll release created a seismic move in rates as the report showed 303,000 new jobs for the month versus expectations of +214,000. The 3-month average of job gains is 276,000 – eclipsing last year’s average gain of 242,000. The unemployment rate stood firm at 3.8%.
Halyard’s Weekly Wrap – 3/29/24
/in Weekly Wrap/by halyardThough the minutes of the recent FOMC meeting reconfirmed the committee’s expectation that they’ll cut the overnight rate three times this year, market consensus is moving away from that expectation. Fed fund futures had priced in as many as five rates cut by December at the start of this year. Instead, the future now implies about 60 basis points of rate cuts by the end of this year.