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.
Contact Us
Location
399 Knollwood Road
Suite 107B
White Plains, NY 10603
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.