Halyard’s Weekly Wrap
our thoughts on the past week’s market activity, economic releases, and Federal Reserve commentary
04/03/26 – Relief rally in bonds as growth fears out way energy price shock.
For the markets, this week was welcome relief after last week’s debacle. Fundamentally and economically, nothing has changed so we’d describe this week as a relief rally.
This morning’s release of the February employment report was mostly good news. According to the BLS, the economy added 178,000 jobs in the month and the unemployment rate ticked down to 4.3%. However, last month’s disappointing contraction in the jobs count was revised from -92,000 to -133,000. Most economists were looking for an upward revision.
Earlier this week Retail Sales for February showed a break for the weakness seen over the prior two months with a 0.6% month-over-month gain. Furthermore, the gains were broad based, which bodes well for the economy, or at least it did. The war with Iran is dragging on longer than the President had forecasted and there’s no doubt that it’s dragging down economic activity. The Atlanta Fed GDPNOW, the real time Fed forecasting tool, has dropped sharply to 1.63% from more than 4% earlier this year. Ominously, gas prices continue to rise which is likely to crimp overall consumption demand.
For the week, the yield-to-maturity of the 2-year note has fallen by nearly 20 basis points, while the long bond is about 8 basis points lower.
Attention next week will be on the CPI reading for March, and the early forecast is that it’s not going to be good news. On a year-over-year basis, CPI is expected to rise to 3.4%, up from 2.4% last month. While that’s unlikely to persuade the Fed to raise the overnight rate, it will certainly erase talk of any future rate cuts.
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 Year End Wrap – 12/31/23
/in Weekly Wrap/by halyardIt’s been a remarkable year in the capital markets! Last December, year-over-year consumer price inflation was running 6.5% and the Federal Reserve was solidly in “higher for longer” mode with the committee prepared to continue to raise rates to quell inflation. The ten-year Treasury opened 2023 yielding 4.48%, ticked up to a high of 4.65% early in the year, before ultimately settling at 3.88%. The Fed communication has changed dramatically in the last 12 months. They dropped the higher for longer mantra this month, instead communicating that they anticipate three rate cuts in the coming year. Let’s hope they’re not premature in their abrupt policy change. By several measures, the economy continues to run hot, especially employment. It has become clear that there’s a worker shortage in the United States. The unemployment rate in November was 3.7%, just above the all-time low. The Fed usually doesn’t cut rates when unemployment is near a cycle low. But this Fed has proved that they have no interest in any rules-based policy.
Halyard’s Weekly Wrap – 12/22/23
/in Weekly Wrap/by halyardThe Euphoria from last week’s news that the Fed was done raising interest rates and expects to cut rates by 75 basis points next year continued into this week. In anticipation of those cuts, the entire yield curve has priced approximately 100 basis points lower. The knock-on effects can be found almost everywhere; the S&P 500 is less than 1.0% off an all-time high, mortgage rates are back below 7.0%, and consumer confidence as measured by the Conference Board’s present situation index is skyrocketing. But we wonder if that euphoria is unwarranted. After all, the move lower in rates is an easing of financial conditions, coming while year-over-year core CPI is 4% and pressure for higher wages is unrelenting.
Halyard’s Weekly Wrap – 12/15/23
/in Weekly Wrap/by halyardThis was a week when investors would have done well ignoring the economic calendar and instead focused on the summary of economic projections, more widely known as the “dot plot.” Released along with the minutes of the open market committee meeting on Wednesday, the dot plot showed a change in thinking from the committee. Investors had been speculating that the Fed had reached the peak of their tightening cycle and the FOMC release confirmed that. The dot plot released in September showed more than half of the committee expected an additional rate hike this year. The December chart indicated that no members anticipate any additional hikes this year. Moreover, the median view is that there will be 75 basis points of rate cuts in 2024. With that decidedly dovish statement, stock and bond markets continued their bullish run. The five-year Treasury note is trading below 4%, closing the week out at 3.92%, while the S&P 500 continues its parabolic rise, rallying more than 15% since the last week of October.
Halyard’s Weekly Wrap – 12/8/23
/in Weekly Wrap/by halyardThis morning’s employment report delivered a curveball to market participants who had been looking for continued economic moderation. That was not to be the case. The economy added 199,000 new jobs in November, up from the previous month and 14,000 more than the consensus had been expected. Average hourly earnings rose 4.0% year-over-year, as it did the prior month. But what really grabbed the investor’s attention was the downtick in the unemployment rate, which came in at 3.7%, 0.2% below the previous month. The large change in household employment, 747,000 new jobs reported, and the change in the size of the workforce, 532,000 new entrants, was responsible for the decline.
Halyard’s Weekly Wrap – 12/1/23
/in Weekly Wrap/by halyardThere were two news stories this week that made us double check the calendar to ensure that we hadn’t transported back sixteen years to pre-crisis 2007. The first had to do with the Federal Housing Finance Agency (FHFA) and the second was the proliferation of private credit.
Halyard’s Weekly Wrap – 11/24/23
/in Weekly Wrap/by halyardThe upward trajectory of stock prices continued this week despite what some observers called hawkish Fed minutes. We’re hesitant to side with that view simply because there was no deviation from the comments that Chairman Powell communicated at the post-meeting press conference. The committee remains vigilante against any signs that economic growth or inflation is reaccelerating and will raise the Fed Funds rate again if needed.