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Bond Market Strategy
Yield Trend: The Movie click on image to view movie
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Friday, December 1, 2023
New S&P 500 2024 closing high, +19.7% YTD, on Friday. Risks are balanced, Powell said. Core PCE inflation has been in the 2% vicinity for six months now. Fed Governor Waller said Tuesday he could see rate cuts next year if inflation reports continue going forward the same as the last six months. If inflation comes down, and the Fed funds rate stays at 5.5%, then real rates get more restrictive. 10-year yields closed 4.20% on Friday, an amazing turnaround from the 5.02% 2024 yield high on October 23. Not sure how next week’s labor market data, Jolts on Tuesday, the monthly employment report on Friday, can change things. A recession finding would not be good of course. Continuing unemployment claims are moving upward in a way that looks like a possible recession and needs to be watched next Thursday as seasonal factors could be fluky. But still, lots of people on the dole.
Friday, November 17, 2023
It was all inflation or the lack thereof for markets this week. On Tuesday, core CPI rose 0.2%, less than 0.3% the prior two months, and you would think the Fed had won the inflation fight the way markets reacted. 10-year yields were 4.64% on Monday’s close and 20 bps lower at 4.44% at Tuesday’s close. Not that we don’t like it with the S&P 500 rising 1.9% on Tuesday so we decided to take a look at our financial statements online. At least the House voted through spending to keep the Federal government open until January/February next year. One risk is off the table. Recession risk still out there, has been since the Fed tightened its monetary policy the first time in March 2022. Recession risk as in the Fed stops or goes into reverse with its rates policy. Maybe markets rallied briefly on weekly jobless claims rising 13K to 231K on Thursday. Maybe. Not sure we buy that.
Friday, November 10, 2023
Quiet week until Thursday and Friday. The stock market fell apart Thursday, mostly with the less than solid 30-year Treasury auction results at 1pm ET, higher yields, lower stocks, especially tech, and then Powell’s comments at 2pm ET kicked bond and stock prices even lower. Looked like the rally since Halloween was failing, even got the Michigan Consumer Sentiment data Friday at 10am ET where the public thinks long run inflation expectations (5 to 10 years from now, how could they know?) were the worst since 2011, data Fed Chair Powell says they look at very carefully. But it was a big so what, and the stock market rally just kept going, forcing more and more shorts to cover. SPX filled the gap at 4,400, trying to shake off the downtrend since July 27… ahead of a Federal government shutdown. On Friday, 10-yr yields closed at 4.65%, and the S&P 500 is up 15.0% YTD.
Friday, November 3, 2023
It is a good thing the Fed is counting on rising bond yields to tighten policy so they do not have to do another rate hike. The 10-yr 2023 yield high was 5.02% on Monday, October 23 when Ackman covered his short as we all did, and now almost two weeks later the yield closed Friday night at 4.52% which is 50 bps on our HP 12C calculator. Bond yields fell 20 bps on Wednesday, mostly due to the Treasury’s quarterly refunding announcement at 830am that was somewhat less than expected. They are selling $112 billion 3-yr, 10-yr, 30-yr coupons next week, where at the August refunding they sold $103 billion. On Friday, 10-yr yields fell 14 bps from Thursday as the 150K gain in payroll jobs was less than expected; bond prices went up spectacularly and so did the stock market. The S&P 500 rallied 5.9% this week and is up 13.5% YTD. Focus ahead is on the gap at the 4,400 level.
Friday, October 20, 2023
We cannot point to any mispricing with 10-yr yields rising to just short of 5.00% this week as the Fed funds rate is still higher at 5.5%. Powell’s remarks on Thursday, planned or not, sent yields up the most, breaking the prior 2023 4.89% high after Jolts on October 4. Stronger retail sales on Tuesday started the week’s yield rally on its way. Even Powell is pointing to the Atlanta Fed GDPNow Q3 estimate of 5.4%. Stocks follow bonds and equities dropped, the markets finding offense Thursday most with Powell saying [32:40] “the evidence is policy is not too tight now.” Stocks are finding it heavy going for now with higher rates, the last move in rates on Friday was a record high for 30-yr yields with the curve steepening. S&P 500 fell 8.5% from July 26 to October 3, with the low barely holding this week despite Powell and stronger retail sales. The 10-yr Treasury yield closed the week at 4.93%.
Friday, October 13, 2023
Bond yields were at 2023 highs of 4.89% in the Europe trading session Wednesday October 4 following the US Jolts data on Tuesday morning. Closing last week at 4.80% before the Saturday Hamas attack in Israel. Cash bonds were closed Monday, but bond futures tumbled. 10-yr yields were as low as 4.62% on Tuesday with the safe haven buying. Yields fell further on Wednesday during the Europe session again around 3am ET, there was an ECB inflation survey at 4am ET, and the Fed minutes “proceed cautiously” at 2pm ET. Yields rebound on Thursday’s 0.3% core CPI report, and a weak 30-year auction at 1pm ET sent yields as high as 4.73%. On Friday, some caution going into the weekend, still no speaker of the House of Representatives. Stocks seemed to fall Friday on the drop in consumer sentiment, while bonds ignored the report. Stocks +12.7% YTD, bonds close 4.63%.
Friday, October 6, 2023
Stocks made a new low on Tuesday for the 8.5% move lower from the July highs, kicked down by the Jolts data which don’t exactly scream the sky is falling for the economy (see Tuesday economic data releases in this report). Technical chart patterns rule, and losses generate more selling. Which brings us to Friday where stocks fell 0.9% on the news, could not break the week’s low and rallied 2.1% off the low. Forgetting the idea that stocks decided a couple of hours later, the report was mixed with its unchanged unemployment rate and softer 0.2% increase in wages or that strong jobs are good for the economy and profits… What is it about October and market bottoms? The 2022 low down 27.5% from record highs happened on another equally challenging day to explain why. Stocks fell 2.4% after 0.6% core CPI on October 13, 2022, and rallied 5.1% off the low at the close. Ours is not to reason why.
Friday, September 29, 2023
Wild week with stock market meltdown on breakout high on Treasury yields. 4.68% high after GDP data on Thursday, the Fed is higher for longer stuff, but then again the Fed funds rate is 5.50%. Haven’t seen it in a while, but a close above a round number like 4.50%, as happened Monday night, tends to keep the trend going in the same direction and that was true this week. Higher crude oil prices, “inflation,” up $3.29 to $93.68 on Thursday brought bond yields to as high as 4.65%. Yields came down on 0.1% core PCE inflation Friday, but did not hold it, and closed the week at 4.58%. Stocks fell hard to Wednesday’s low, down 8.0% from the July 27 high, and down 11.0% from all-time high in January 2022. Not sure what stocks want to see besides bond yields stabilizing. Rally into close of the quarter is holding despite possible Federal government shutdown early Sunday morning.
Friday, September 22, 2023
The Wednesday, September 20 Fed forecasts set off the selling in the stock and bond markets this week. Rates are coming down 50 bps to 5.25% at the end of 2024, where the FOMC forecasts made in June called for 100 bps of cuts to 4.75%. The 10-year Treasury yield was too low at 4.36% on Tuesday night so it moved as high as 4.498% on Thursday at the peak, up 14 bps, but 100 bps short of the 5.50% Fed funds rate. Not so bad maybe, but it is a new yield high since the Fed’s first rate hike in March 2022. Bond yields closed 4.44% on Friday. Stocks made a new low, extending the July 27 sell-off another month to 6.3% high-low, where the old August 18 low was a 5.9% loss. Powell said he liked the last three monthly changes of CPI: 0.15% June, 0.16% July, 0.278% August. Core PCE is Friday, September 29: 0.21% June, 0.22% July, stay tuned for August and benchmark revisions.
Friday, September 15, 2023
Crazy up/down wiggle-wiggle week for stocks, still working on the recovery from the July 27 to August 18 decline of 5.9%. Forget about it. S&P 500 up on Monday with Tesla’s 10.1% jump. Apple Event Day with new iPhones on Tuesday, a dud like many of these product announcement days, with the S&P 500 falling back 0.6%. Somehow stocks were higher on Wednesday after 0.3% surprise core CPI, and making the high for the week after 0.6% retail sales on Thursday with the consumer still spending. All this buildup looking good, which makes Friday’s 1.2% wipeout completely unfathomable regardless of falling chip stocks, an auto strike, higher crude oil/bond yields; we chock the Friday losses up to the options expiration that comes back to bite the markets sometimes at quarter-ends. 10-yr Treasury yields end 4.33% up from 4.27% last week. 2023 peak was 4.37% in August 2023.
Friday, September 8, 2023
S&P 500 got waylaid on its attempt to recover from the July 27 to August 18 decline of 5.9%. The breakdown looks technical with some key news helping speculators to kick it down hard. ISM services increased on Wednesday and the market acted like it was stronger growth that would prompt a Fed rate hike. Apple news too on Wednesday that China would ban its officials from using their iPhones at work. Apple fell 3.6% Wednesday, -2.9% Thursday. For 10-years, yield curve moves complicated the trend. 10-year yields on the ISM services news rose 5 basis points, but the curve flattened thinking Fed rate hikes ahead, with the 2-year yield up 10 basis points to back over 5%. If you were thinking of locking in 5% for two years, instead of riding money market fund 5% interest day-to-day, now would be the time. The June Fed forecast said rates would drop from 5.75% in 2023 to 3.5% in 2025.
Friday, September 1, 2023
S&P 500 is up 17.6% YTD Friday. Dow industrials up 5.1% YTD. Loser. Geez, won’t go back to graphing Dow for a while. Stocks had trouble closing up on the day on Thursday, and barely made it on Friday. The market has stalled trying to close the gap on the charts above 4,550 left after Fitch downgraded USA to AA+. Data this week was JOLTS job openings down to 8.827 million in July from the last update of 9.582 million in June. Core PCE inflation matched core CPI with a 0.2% increase thank goodness. Jobs report 187K, but unemployment lifted from 3.5 to 3.8%. Thinking on this further, after writing the first couple of pages, it may be technical. If there are jobless workers they aren’t applying for unemployment benefits. Bond market thinks Fed hikes are less likely so the yield curve steepened on Friday’s news with 2-yr sitting still at 4.87% and 10-yr up 8 bps to 4.19%.
Friday, August 25, 2023
Starting in European trading on Monday, bond yields went to the highest levels since 2007. Sounds dramatic, but the old high was 4.325% on October 21, 2022 when the Fed funds rate was 3.25%. Bonds ahead of the Fed last year, now behind the Fed and waiting for a policy reversal with the Fed funds rate way up at 5.5%. The 10-year yield high Monday was 4.355% and 4.37% on Tuesday, the new peak. What happened starting in Europe came back down during the European trading session on Wednesday starting with French purchasing managers saying there is weakness at 315am ET, then weak PMIs from Germany, UK, and finally USA. Powell the hawk sent yields up the first half-hour after the headlines appeared, and settled back some. Short-term yields went up, and bonds sat still, a yield curve flattening that happens when the market sees rate hikes ahead. All that was missing from Powell was him trying to talk Fed officials’ terminal rate forecasts higher than 5.75%.
Friday, August 18, 2023
Major reversal in the stock market. Nothing reasons each day add up over time during these market descents that investors never want to see or believe until they read their brokerage statements on the weekend. S&P 500 from the 2023 high on July 27 has fallen as much as 5.9% to Friday’s lowest point. This is the second worst sell-off this year since the 9.2% February-March decline that got extended unexpectedly by the sudden bank crisis. How on earth did this happen, down 5.9%? Well, the 2023 high on July 27 was up exactly 20.0% on the year, a natural place to reassess how much money you have in stocks. There was day to day news behind the sell-off, but major driver is 10-yr Treasury yields making a new high on Thursday, new high since the Fed’s first rate hike in March 2022. Not that much higher than 4.325% last October, less than a basis point, but still frightening enough apparently.
Friday, August 11, 2023
Bond yields fell to the week’s low of 3.95% after CPI on Thursday, but it had been close to that level, below 4.00%, helped along by some weak July exports data, down 14.5% was the headline from China. Apparently those yields were too far below the 5.5% Fed target, and yields bounced back to 4.10% later on Thursday after the weak 30-year bond auction results, the last leg of the Treasury’s quarterly refunding auctions. PPI inflation on Friday seemed to move yields up further, not sure how logically as producer prices are weak and won’t be sending more inflation the consumer’s way. The stock market has stalled out the last two weeks, the S&P 500 down as much as 3.5% Friday from the July 27 high for 2023 after that stronger than expected 2.4% GDP first estimate for Q2 2023. Stocks seem to be having some issue with 10-yr Treasury yields moving above 4%.
Friday, August 4, 2023
Bond yields moved up sharply basically on supply jitters. 3pm ET Monday the Treasury released its new quarterly borrowing estimates. We know these are the largest, deepest, most liquid markets in the world, but they need to auction nearly $3.2 trillion of Treasuries in calendar year 2023, more than double the $1.5 trillion sold in 2022 or the $1.5 trillion sold in 2021. Shortly after 5pm ET Tuesday, Fitch downgraded the U.S. to AA+, echoing the move S&P made that shocked the world in August 2011 when the stock market was more fragile having sold off already during one of the many European debt crises. Bond yields jumped after the Wednesday 830am ET Treasury quarterly refunding announcement of the 3-yr, 10-yr, 30-yr securities to be sold next week, and those higher yields along with the Fitch downgrade sent the S&P 500 down 1.4% for the day. That’s enough markets this week.
Friday, July 28, 2023
Stocks made a new 2023 high Wednesday early in the press conference Q&A or in Powell’s brief opening remarks, something about future decisions will be made meeting to meeting maybe, or no rate cut this year. The intraday rally in stocks stalled, fell, breaking technical support, and tumbled back to the lows, stock investors like rapid-fire, pork bellies lean hog traders in the commodities futures markets. Powell emphasized they will have two more CPI reports and two more payroll jobs reports before the next decision date on September 20. A lot of data in the data-dependence. The decision is whether they need to raise rates further, not whether to cut rates. All the excitement was on Thursday around 1pm ET on the BOJ getting ready to adjust their yield curve control (YCC), and stocks fell as well on higher capital requirements for big banks. S&P 500 new 2023 high 19.3% YTD, 10-yr 3.95%.
Friday, July 21, 2023
Bonds tested the downside in yields where 3.70% has been a line in the sand since early June. UK CPI inflation at 2am ET Wednesday helped bonds rally: UK CPI year-year was 7.9% in June down from 8.7% in May. US CPI miles ahead of the game with the July 12 report of June CPI 3.0% year-year down from 4.0% in May. Bond yields went back up Thursday starting at 315am ET (write if you know why) and much higher after jobless claims fell 9K to 228K which is a long way away from a U.S. recession. Stocks went up Tuesday, a mix of bank earnings and Microsoft has a $30 AI application of some sort. The S&P 500 closed Wednesday the best this year up 18.9% YTD. Earnings were “good” after the bell Wednesday for Tesla and Netflix, but both stocks fell hard Thursday, down 9.7% and 8.4%, respectively. “Priced for perfection” is what we heard as we turned off the TV.
Friday, July 14, 2023
Stocks made a few new daily highs for the year this week. Fed Governor Waller may want to see more but the market liked the core CPI reading cut in half to 0.2% for June on Wednesday after a string of 0.4s and one 0.5 percent over the six months from December to May. Core CPI year-to-year dropped five-tenths from 5.3% to 4.8%, so perhaps the Fed’s target of core PCE inflation on July 28 drops back 0.5 percentage points to 4.1% which is close to the 3.9% average in Q4 2023 that the Fed has forecast. Who knows if that is enough to stop a second Fed rate hike, after skipping March, later on this year. The market does not especially think that a second one is ever coming, even before Wednesday’s CPI report. The S&P 500 at 4,505.42 on Friday is up 17.3% YTD. Stocks are close to erasing the 19.4% 2022 loss with the level at the end of 2021 being 4,766.18. Bonds closed 3.83%.
Friday, July 7, 2023
A very holiday shortened week with July 4th falling on Tuesday this year and markets barely open on Monday for the brave. The big excitement was the Thursday ADP jobs report of 497K where actual private jobs in the BLS survey Friday were a less than stellar 149K and downward revisions of 98K in April/May as well. Bond yields jumped 10 bps over the 4.0% barrier on Thursday with ADP to 4.04%, but with the real BLS jobs data only corrected back down as far as 4.00%, before climbing to a higher close of 4.07% on Friday. Bond yields are back to the yield highs of the year before the Silicon Valley Bank failure on March 10 scuttled the Powell plans for another couple of rate hikes. The S&P 500 is having problems clearing 4,450 for a second time, this time because 10-yr Treasury yields are back above 4%. The S&P 500 closed Friday up 14.6% YTD and 8.7% below the all-time high in 2022.
Friday, June 16, 2023
Confusing day for the bond market on the CPI inflation report, stop loss selling in the first minute after release at 830am ET, rally all the way back still within the first minute, then gradual sell-off to yield high of the week at 3.85%. Some like headline CPI at 4.0% YOY down from 4.9% the prior month, but that was all energy as core CPI rose 0.4% for the month, and Powell cited core consumer inflation as problematic at Wednesday’s Fed press conference. Bond yields didn’t react all that much to the Fed pushing up the terminal rate 50 bps to 5.75% on Wednesday. Thursday yields came back down at 830am with a lot of economic data including new 2023 high for unemployment claims at 262K (recession is closer) and retail sales up 0.3%, but real retail sales down the last year. Bond yields closed Friday at 3.77%. and the stock market kept going after entering that fabled bull market up 20% from the low last week. S&P 500 closed Friday up 14.8% YTD, down 8.5% from 2022 record high.
Friday, June 9, 2023
Bull market in stocks closing up 20% from that strange day in October after inflation. Not sure how it can be a bull market when stocks remain down from the record high in the first few days of 2022. 10-year yields rose back higher within a roughly 20 bps range this month from 3.6 to 3.8%. Weaker economy news brought yields down twice: Monday ISM services PMI fell 1.6 points to 50.3 where below 49.9 is a GDP recession, the weekly jobless claims jumped to 261K on Thursday, the high for 2023. 10-year Treasury yields closed at 3.74% on Friday which is way, way lower than the 5.25% Fed funds rate as investors, traders, someone is expecting the Fed to bring rates back down in a recession. Fed officials say they will keep rates high for a while, but a while is only until the end of 2024 when their forecasts look for a 4-3/8% Fed funds rate, to be updated on Wednesday, June 14 at 2pm ET.
Friday, June 2, 2023
At least we don’t have to hear about the debt ceiling for a long, long time, January 1, 2025. Although there probably won’t be much agreement when the time comes on which discretionary nondefense outlays “to cut” in the year starting October 1. The stronger payroll jobs report put a 25 bps rate hike back on the table on June 14 even if using June Fed funds futures are a messy read of “market expectations” as the contract is based on an average of all the days in June with the meeting coming in the middle of the month. The typical market participant won’t be trading June Fed funds futures either which is setting the odds. With the uncertainty lifted, stocks closed up 11.5% YTD and 11.1% below the early February 2022 record high. 10-year Treasury yields dropped from 3.81% last Friday on the weekend debt deal, fell to 3.58% before rising 10 bps to close at 3.70% Friday after 339K jobs.
Friday, May 26, 2023
Focus is on the debt limit legislation coming any day now, but there’s been a steady upward trend in August Fed funds futures yields where now a 25 bps rate hike is discounted at the June or July meetings. Inflation in the U.K. pushed up global short-term yields on Wednesday, jobless claims collapsed after steep downward fraud revisions to data in Massachusetts on Thursday (no recession is near), and PCE inflation brought August futures yields back up after a brief decline overnight on Friday. Stocks have been following the news on the debt ceiling, retreating on lack of progress during Tuesday’s session certainly. But stocks closed the week at a new 2023 high thanks to Nvidia earnings after the close on Wednesday. After the close on Friday, Yellen gave an update on the so-called X-date when the US is really, really out of cash. It is June 5 now where it had been June 2.
Friday, May 19, 2023
After moving higher during the week on debt ceiling progress, headlines in the 11 o’clock hour Friday, brought bond yields and stocks down sharply before recovering for some unknown reason. Around 11:05am ET Yellen told bank CEOs more mergers might be necessary and regional bank PacWest’s stock plummeted. Powell was on stage with Bernanke at a conference starting at 11am ET, and initial headlines seemed hawkish where High Inflation Poses Significant Hardship, and Inflation Is Far Above The Fed’s Objective. Other news headlines appeared later saying the debt limit talks had hit a roadblock, Republicans hit the pause button and walked out. With all this it was surprising to see the S&P 500 only close down 0.1% on the day; on Thursday, the S&P 500 made a new high close for the year at 4,198.05, up 9.3% year-to-date. 10-yr yields as low as 3.64% on Friday, closed at 3.68%.
Friday, May 12, 2023
Bond yields fell from 3.5% on Wednesday after CPI inflation met expectations. Reaction was instantaneous and there was not a lot of thinking going on. Yields came down further on Thursday on PPI we guess, but mostly we would hope on the recession drawing closer with weekly jobless claims rising 22K to 264K for the May 6 week. October Fed funds futures still have a 25 bps rate cut at one of the next three Fed meetings. It was up periscope for 10-year yields on Friday at 10am ET when the Michigan consumer sentiment survey showed a deterioration in long run inflation expectations from 3.0% to 3.2% and bond yields closed 3.47% for the week. Do-nothing stocks seem to think it is summer with the warmer weather on the East Coast. The S&P 500 fell 0.3% for the week and is up 7.4% YTD. Stocks liked consumer sentiment, and news late Thursday on the debt ceiling talks.
Friday, May 5, 2023
Stocks fell all week despite First Republic getting bought by JPMorgan in the early hours on Monday morning. Stocks fell with the sell-off in regional banks until Friday, where the only thing that appeared to change was that a Wall Street bank put out a strong buy on the shares. At the Fed meeting press conference Powell said they were closer to the end of the rate hikes than the beginning after raising rates 25 bps to 5.25%. When you add up all the rate hikes along with QT and tighter credit conditions after the bank crisis “we feel like we’re getting close or maybe even there.” Okay. Didn’t seem to help the stock market all that much. The regional bank problems are still there, inflation isn’t going back to 2% target, and the labor market remains tight. The S&P 500 closed up 1.8% Friday, and down 14.2% from the February 2022 high. 10-year yields closed 3.44%. CPI inflation is Wednesday, May 10.
Friday, April 28, 2023
Bond yields fell early in the week, Monday on the high-profile Dallas Fed manufacturing index of all things, and Tuesday, the return of the bank crisis with First Republic (FRC) falling 49.4% to $8.10. Maybe Wall Street and Washington think it is just one bank, but this is reminding us more every day of the S&L Crisis in the 80s, “caused by historically high interest rates,” with over 500 failures from 1980 to 1988. The Fed’s $1.9 trillion of QE during the pandemic increased bank deposits, banks bought Treasuries at low yield levels, now all the holdings are under water with the Fed’s 5% policy rate, and the Fed’s QT is extinguishing bank deposits so banks may need to sell Treasuries at a loss. Looking on the bright side of life, weekly jobless claims fell back 16K to 230K on Thursday, harder to say a recession is coming; 10-yr yields rose until Friday, when First Republic stock cratered to $3.51.
Friday, April 7, 2023
Bond yields fell most of the week on signs of an economic slowdown. The biggest market-moving info was ISM mfg on Monday, Jolts on Tuesday, and ADP jobs on Wednesday. Unemployment claims revisions on Thursday moved bond yields less than you would have thought. The mystery continues, even more so with continuing unemployment claims rising sharply since last September, but the count of the unemployed behind the rock-bottom March 3.5% unemployment rate low is not budging. It is hard to read the market reaction to the Friday jobs report with most people out for the Good Friday holiday. Jobs report was 830am ET, S&P futures stopped trading at 915am ET, and Treasury futures closed at 1115am ET. Cash Treasuries closed at noon. The curve flattened with the Fed expected to raise rates one more time, maybe on May 3, 2-yr yields rose 14 bps to 3.97%, 10-yr 10 bps to 4.40%.
Friday, March 31, 2023
The market thinks the bank crisis is over after testimony this week pointing to bad management at Silicon Valley Bank and Signature Bank. There’s still the matter of huge unrealized losses on banks’ security holdings, but more deposit outflows or more expensive deposits if banks ever raise the interest they pay on savings accounts that might prompt underwater security sales, will have to wait for another day and a much higher 7 to 8 percent Fed funds rate if inflation moves up higher or sticks at 5%. This episode reminds us of the Volcker rate hikes in the early 80s that made Savings & Loans insolvent. 10-year yields fell Friday, and if it was due to the 0.3% rise in core PCE inflation, it sure took most of the day to get the bond market rally going. Same for stocks in an up week at new highs on a Friday that is also the end of the quarter, it took time for buyers to push the index higher. The S&P 500 closed 4,109.31 up 7.0% YTD. 10-year yields closed at 3.47% way under the 5% Fed rate.
Friday, March 24, 2023
Apparently, this is not a Lehman moment or a Minsky moment for stocks during this banking crisis. S&P 500 closed 3,992.01 Wednesday, March 8 before Silicon Valley Bank dropped 60.4% the next day, and then the FDIC closed it on Friday, March 10. And now we close this week at 3,970.99, only 0.5% lower, with the stock market showing every sign of wanting to go higher next week if the market doesn’t push down the shares of Deutsche and several other European banks when we come in Monday like they did this morning on Friday. Yields? 10-yr yields hit the 3.29% low of the week on the crash in European bank shares on Friday, and recovered to close at 3.38%. With the ongoing bank crisis, bond yields didn’t respond that much to the Fed pause as policymakers wait to see whether tighter credit conditions will slow the economy. PCE inflation is Friday, March 31.
Friday, March 17, 2023
One of the most volatile weeks for Treasuries since the 2008 Lehman crisis with wide-ranging days. Focus was on credit concerns for First Republic Bank then Credit Suisse. Credit Suisse then First Republic Bank. There were many joint official statements issued but the market is unsettled. Maybe First Republic and Credit Suisse need to get resolved. The market doesn’t like potential bankruptcies hanging over its head. Washington officials don’t want to do bailouts like the last financial crisis (well, they let Lehman go), they are protecting depositors, but they forgot about stockholders and the speculators selling bank shares sensing the bank could go under and the shares become worthless. Some hoping shares will fall to zero and become worthless. It is unclear what the Fed will do or what the market will do to what the Fed does. Friday close: 25 bps rate hike to 5.0% next week, but 50 bps of cuts follow that. The magnitude of the rate cuts bet goes up every time First Republic Bank falls.
Friday, March 10, 2023
Silicon Valley Bank failed on Friday and after reading up on the difference between securities held-to-maturity or marked-to-market, in the end it was an old-fashioned bank run suffered by a loss of confidence and fear. Facts do not matter and there are lists of other large and small banks with similar though different problems and blemishes on their balance sheets circulating in news stories on the internet and twitter, so the overall market will remain nervous for some time. The 10-year Treasury yield fell 21 bps to 3.70% Friday. The 2-year Treasury yield fell 28 bps to 4.59%. The S&P 500 fell 1.8% Thursday and 1.4% Friday. At the 3,861.59 close Friday, the S&P 500 is down 19.9% from the early January 2022 record highs, a recession-magnitude loss minus the recession. Depositors will remain nervous as it can happen quickly. SVB lost $42 billion in deposits on Thursday before it failed.
Friday, March 3, 2023
10-year yields broke 4.00% on Wednesday for the first time since November 2022. Bonds closed above 4.00% on Thursday (4.06%), but couldn’t hold the level and closed Friday at 3.96%. The Fed is pushing its rate to at least 5.25%, and bonds act like they don’t have a care in the world. No economic news reports on Friday in any case. For stocks, the strong rally from Thursday’s low for the week has left the market on Friday down 16.0% from the January 2022 record highs. The S&P 500 had been down as much as 27.5% last October. A 16% loss still discounts an awful lot of bad news. A recession magnitude loss is 20 percent. The smallest decline for a recession since the 70s was the 20.4% decline in the 1990-91 recession where the Fed funds rate peaked at about 10% before the economic downturn. Jobs report is Friday, March 10, hopefully we won’t trade on the wage data.
Friday, February 24, 2023
A new high for 10-year yields this week closing at 3.95%. The high from last October 21 was 4.32% and despite 150 bps of rate hikes since then from 3.25 to 4.75 percent, bond yields could not cross 4.00% this week. Maybe thinking about the prior week’s Fed speakers, bond yields moved up Tuesday after Presidents’ Day and hit 3.95% on the nothing-news of S&P services PMI rising back above the 50 (no recession) level. Stocks don’t like rising bond yields and did not like the 0.6% core PCE inflation data on Friday either. There is a question mark over how high Fed rates need to go, whether the terminal rate moves up from 5.25% to as high as 6%, and nothing will be resolved before Powell speaks up about it. Only a 25 bps rate hike to 5.0% is discounted on March 22. Powell gets his chance after the jobs report on Friday, March 10 and the CPI inflation report on Tuesday, March 14.
Friday, February 17, 2023
10-year yields moved further away from the 3.40% “recession is coming” lows: January 18 after retail sales fell 1.1%, and February 1 when Powell at the press conference said disinflation has begun. CPI was stronger than expected on Tuesday and PPI was up more as well on Thursday. Retail sales on Wednesday snapped back with a gain of 3.0% in January to a new record high. Inflation could still be cooling down despite the market reaction this week. 10-year yields rose 12 bps this week closing at 3.82% and were higher at 3am ET Friday at 3.92%, but couldn’t break the end of last year highs. Stocks followed the same economic reports as bonds, only a stray comment from St. Louis Fed President Bullard around 3pm ET Thursday afternoon sent share prices sharply lower. He wouldn’t rule out a 50 bps rate hike at the March meeting, but Fed funds futures still price in 25 bps.
Friday, February 10, 2023
10-year yields moved higher closing the week at 3.74%, still trying to price in a higher 5.25% terminal Fed funds rate this year as opposed to a 5.0% terminal rate before last Friday’s monster 517K jobs number. 5.25 –3.74=151 bps spread would be quite something to behold without some recession data to possibly change rate hikes to rate cuts. The 10-yr yield low on January 19 was 3.32% which was 118 bps bps under the 4.5% Fed funds rate at the time. That was the day after the “recession is here” retail sales and industrial production data. Our memory had 10-yr yields dropping precipitously trying to get Powell to cut rates from the 2.5% peak in December 2018, which he did on July 31, 2019 by 25 bps, but the max spread on a closing basis was only 54 bps. Stocks this week lost steam dragged down by a bond yield sensitive tech sector. S&P 500 up 6.5% YTD, down 15.1% from 2022 peak.
Friday, February 3, 2023
10-year yields rose 12 bps Friday after the mega jobs report to close the week at 3.52%. The yield spread to the 5.0% Fed funds rate on March 22 is going for the record books especially if there is no recession to bring some Fed rate cuts. The S&P 500 fell 1.2% on the jobs report, rallied back to unchanged and closed the week down 1.0% on the day. It is less clear what a 517K jobs number means for stocks if the Fed is not going to move rates higher than 5.25% which is only 50 bps away. If the economy is holding up, not sending workers to the unemployment lines, maybe it is not as worrisome for stocks and earnings. For the record, the magical 50-day average moved above the 200-day average on Thursday, the Golden Cross, which seemed to bring in more buyers. The S&P 500 at 4136.48 at Friday’s close is still down 14.2% from the January 2022 record high and discounts a lot.
Friday, January 27, 2023
The stock market recovery continued with the S&P 500 closing up 6.0% year-to-date on Friday after falling 19.4% in 2022. There were some positive technical developments that reinforced the move. On Friday, stocks broke a downtrend line from the start of the sell-off in the first days of 2022 drawn on the weekly charts, stopping for the moment at 4100. The high-to-low recession magnitude loss in the S&P 500 in 2022 of 27.5% is now down just 15.5% at the close on Friday. Bond yields have moved back up the last two weeks to close at 3.51% on Friday. They fell on recession data (PPI, retail sales, industrial production on January 18) to 3.32% which was a 100 bps rally from the October 21 high of 4.32%. A 25 bps Fed hike to 4.75% means the 10-yr yield is 125 bps below that, which seems about the most it can go unless there is a recession shown by the February 3 payroll jobs report.
Friday, January 20, 2023
Almost all the economic data turned down sharply this week and is consistent with recession. If only there were job losses to back up the call. Markets don’t know quite how to handle a slowdown, now that it is here. A slowdown used to be good because the Fed would stop hiking rates. The yield curve inverted further after Wednesday’s weakness in retail sales, industrial production and PPI inflation. Not sure what a big inversion means relative to a smaller inversion where the 10-year yield trades under the 4.5% Fed funds rate target, or 3-month Treasury bills or 2-year Treasury notes. The 10-year yield traded as low as 3.32% on Thursday, 100 bps lower than the 4.32% peak back on October 21. 100 bps of inversion means markets don’t believe the Fed can continue lifting rates. The original 3-month/10-year inversion for the month of November 2022 was the signal recession was coming.
Friday, January 6, 2023
Stocks and bonds rally after the December 223K monthly payroll jobs report, mostly on the slower wages, average hourly earnings, big downward revisions to October/November. But the ISM Services PMI at 10am ET fell below 50, which based on this indicator, means a recession, so bond prices fell further to 3.56% at the close, and S&P 500 rallied 2.3% on the day.
Friday, December 30, 2022
That's it for the year. Stocks held 3,800 on a quiet day of mostly selling. 2022 S&P 500 down 19.4% YTD. This is the steepest annual drop since 38.5% in 2008 during the financial crisis and Great Recession. There were a couple of consecutive down years for stocks in the early 2000s and during the 70s that coincided with over a decade of flat returns both times. The downward 10-year yield trend reversed this week with 10-yr yield closing at 3.88%. Odds still favor a 25 bps rate hike to 4.75% on February 1. Happy New Year.
Friday, December 23, 2022
A victory of sorts for stocks climbing the final day of the week. There has been downward pressure since the December 15 hawkish ECB and BOE statements of higher rates to come; the December 15 selling broke the head-and-shoulders chart pattern bringing in more selling. The S&P 500 seems to be holding at the 3800 level for now.
Friday, December 16, 2022
There has been a lot of volatility on the day of Powell’s FOMC meeting press conferences, and the day after when markets have a chance to think about it. Second to Powell is the market reaction to CPI inflation, and this week, we got both. This Fed meeting saw a big change with the 2-year Treasury yield trading below the new Fed target: when it does this historically, it means the Fed’s rate hikes are close to done. It is even more different this time as the Fed’s forecasts look for 100 bps of rate cuts in 2024. Lower Fed rates are ahead when the current 2-year yield is on its way to becoming a 1-year yield at the end of 2023. The other noteworthy happening this week is Fed funds futures don’t think the Fed is going to push up rates a full 75 bps. The stock market didn’t care about what bonds are thinking on Fed policy as the S&P 500 collapsed 2.5% the day after Powell spoke. The BOE and ECB 50 bps rate hikes tanked European stocks, and the ECB statement was hawkish on more to come.
Friday, December 9, 2022
There is some nervousness ahead of the Wednesday, December 14 Fed meeting with the Fed funds rate expected to increase 50 bps to 4.5%. Bond yields would only be trading so far below the Fed funds rate only if they expected the Fed to reverse its policy in the not so distant future. Bond yields fell below 3.50% Wednesday after the revision to Q3 productivity with a drop in wages or unit labor costs. 3.50% is a round number and when it breaks, more selling comes in. Wednesday was the low yield for the week at 3.41%. Bonds were 3.48% before PPI rose 0.3% instead of the consensus forecast of 0.2% which somehow sent yields back up a good 10 bps to close the week at 3.58%. It’s one thing for the 10-yr yield to trade below the Fed target, but if 2-year note yields do, then the market really thinks the Fed is near the end. 2-year yields closed 4.36% and S&P 500 down 17.5% YTD.
Friday, December 2, 2022
The bond rally from 4.30% gained steam on the three noteworthy news events, Powell, PCE inflation, and the jobs report. The move of about 80 bps looks like it would be hard to reverse. Reminds us of late 2018 when the markets ran the Fed out of its forecast to keep hiking rates from 2.5% in 2019. Powell says the terminal rate of 4.75% is going somewhat higher, meaning at least 5.0%, and the market does not care. It thinks inflation has turned. It is a 10-yr maturity. Powell says rates will remain high for some time, but the FOMC’s own forecast looks for rates to drop back dramatically to 4.0% at the end of 2024 and 3.0% at the end of 2025. Stocks this week did break the 200-day moving average. It failed to break it on a first challenge in part due to Powell’s admonishment at Jackson Hole “I’m going to be brief” when the Fed funds rate was still 2.5%. YTD Friday, S&P 500 -14.6%, Dow -5.3%.
Friday, November 25, 2022
Stocks closed Thursday for Thanksgiving and an early 1pm ET close Friday. Not a lot of oomph, but the S&P 500 keeps moving up, gravitating like a moth to the flame toward the fabled 200-day moving average just inches away. Markets, stocks and bonds, seemed to like hearing yet again the Fed would slow its pace of rate hikes (to 50 bps) soon; that was in the Wednesday release of the November 1-2 Fed meeting minutes. 50 bps would put the Fed funds rate at 4.5% on the Fed’s next December 14 decision date which is far above Friday’s 3.69% 10-year Treasury yield close. Bond market must know what it is doing. Friday YTD closes: S&P 500 -15.5%, Dow industrials -5.5% only... maybe because the S&P 500 “tech” heavyweights in the index AMZN -44.0%, AAPL -16.6%, GOOGL -32.7%, MSFT -26.4%, and Tesla -48.1%. Next biggest weights Berkshire Hathaway +6.3%, UnitedHealth +7.1%.
Friday, November 11, 2022
Lots of news this week, and the stock market kept climbing higher. Stocks rallied Monday and Tuesday ahead of the midterm election results, something to do with a red wave that would limit Democrats from doing additional Federal government spending maybe. The crypto crash brought stocks down with Bitcoin down to $15,682 on our screen after being over $68,000 in late 2021. CPI inflation on Thursday was tamer than expected, but the one-day market response still seems over-the-top. S&P 500 rallied 5.5% and 10-yields plummeted 28 bps to 3.82%. Stocks kept going on Friday while bonds were closed for Veterans Day. On Friday, the S&P 500 closed down 17.1% from the high of the year versus the worst day in 2022 after last month’s CPI report with the S&P 500 down 27.5% for the year. No recession with October retail sales up 1% on Wednesday, November 16. Car/SUV sales up big.
Friday, November 4, 2022
We thought we would work one of our favorite graphs back in here this week before bond yields shoot higher with Powell’s new 5%-plus Fed funds rate and we have to revise the upper range of the scale. No dysfunction in the Treasury market yet, although you wonder how much more debt the government can sell to the public until they baulk and say no more. No more unless 10-year yields go higher to 7 or 8 percent. Okay, back to reality, this isn’t the late 70s yet, although it could be if inflation doesn’t stop rising let alone come back down. Powell in the press conference Q&A sought to reassure Americans “that if we were to over-tighten, we could then use our tools strongly to support the economy…” Does he mean the QE that scholars now believe set the match to the inflation fire? Powell bought $1.9 trillion U.S. government securities in the first half of 2020 before settling down to a $80 billion monthly pace. Washington’s $600/$1400 checks totaled “$500 billion” in Q1 2021. Get ready.
Friday, October 28, 2022
The stock market broke out above the downtrend line since August this week and Friday’s close was off just 19.0% from the year’s high versus the worst point, down 27.5%, after CPI inflation on October 13. A stock rally despite the expected 75 bps Fed hike to 4.0% next Wednesday. What size rate hike in December, 50 bps slowdown to 4.5% or another 75 bps hike to 4.75%? January Fed funds futures (adjusted) can help we guess: closed 4.59% on Friday versus 4.61% last Friday. 10-year Treasury yields closed the week at 4.02% down from the 2022 high last Friday of 4.32%. There might be some Fed slowdown behind the drop in bond yields this week although a lot of trading took place overnight in Europe. For example, yields were up Friday at the NY open on stronger inflation reports in Germany, France and Italy. The yield drop Tuesday was on the second month of negative home prices.
Friday, October 21, 2022
We were wondering about bond market valuation knowing the terminal Fed rate next year is 4.75%, and we got the answer this week. Bond yields closed above 4% (4.02) last Friday, and kept going this week, although it didn’t seem to hold back the recovery in the stock market. Yield rallies tend to keep going for a time after breaking “major psychological resistance levels” like 4.00%. The 10-year yield reached as high as 4.325% on Friday before closing at 4.23%. Fed talk helped push yields up this week and suddenly Fed talk brought yields down and stocks up on Friday. Not sure how substantive the switch to Fed dovishness was on Friday using a Bernanke word, but market reasoning can change suddenly. Can’t remember who it was who said market commentary shouldn’t be a “macroeconomic description of a random walk.” The S&P 500 rallied back this week; can’t change the Friday close whatever the reason. Low close for 2022 -24.9% October 12, and -21.3% YTD on Friday.
Friday, October 14, 2022
Stocks went down again on another CPI inflation report on Thursday. It isn’t clear if the news will cause the Fed to lift its terminal Fed funds rate forecast of 4.75% even higher. Their next forecast of the future is 2pm ET Wednesday, December 14, and they will have two more CPI reports before then. Right before CPI, S&P futures were up over 1% ahead of expected UK budget news, fell 2.4% on 0.6% core CPI for a second month, then closed 2.6% higher than Wednesday. A huge low-high swing that defied explanation although 3,500 seems to be holding, just like 3,600 did for a long time. US yields followed the news for UK Gilts most of the week. 10-year Gilts closed Friday at 4.39%, 214 bps higher than the 2.25% base rate, keeping in mind BOE officials say a “significant” rate hike is needed in November. Hope Friday’s 4.02% US 10-yr close doesn’t trade that wide to the 3.25% Fed rate.
Tuesday, October 11, 2022
What a day. S&P 500 recovered from morning losses, worst of 2022 down 25.9% from the highs for the year, a new low, but prices recovered before new selling after the Bank of England Bailey statement at 245pm said UK pension funds had 3 days to get it done before QE support stops. New selling that dropped stocks close to but not breaking the morning low, but still 1.5% drop on BOE news at 245pm ET. 1.5% on Bank of England?
Friday, October 7, 2022
Another strange week in the way the stock market reacts to the news and data. Everything is about waiting for the Fed to stop hiking rates. Like it’s March 2020 or March 2009 again waiting on the Fed to ride to the rescue. Anyway the 5.7% stock market rally Monday/Tuesday failed after the jobs data and the S&P 500 closed Friday just 1.5% higher on the week. 1.5% better than nothing. Bonds followed the UK Gilts crisis down and then back up. Same valuation question for bond yields, “where should they trade,” even if the Fed’s forecast for the terminal Fed funds rate is 4.75% now, up from 3-7/8%, after the September 21 FOMC press release. Markets reacted badly to the August month consumer inflation data, CPI September 13, PCE September 30. It can’t go down again on September CPI released Thursday, October 13, can it? Friday closes: 10-yr 3.89%, S&P 500 -23.6% YTD.
Friday, September 30, 2022
We must be missing something. This is what a financial crisis looks like. Only the Fed caused it. Trying to out Volcker Volcker. The S&P 500 on Friday seconds before the close was down 25.6% from the high of the year. During the Volcker years there were two recessions in the early 80s and two stock market plunges: a 21.6% loss in 1980; it came back, made a new high, then fell 28.0% during the 1981-82 recession. This isn’t working. The economy isn’t even in a recession yet. The stock market is too sensitive to the Fed’s communications. Fed officials saying once they get to 4.75% the Fed funds rate will stay up there a long, long time. We aren’t sure how you explain to the American people why the stock market is down 25%. The bond market. The 30-year Treasury auctioned in November 2021 is down 28.6% in value. Financial assets down with home prices next. If there isn’t price stability, the economy does not work for anyone, Powell said. But crashing the stock market doesn’t either.
Friday, September 23, 2022
This is the second time the market sold off on a “hawkish” Powell. First was Jackson Hole, and now this week the Fed meeting. January Fed funds futures were pricing in 75 bps and 100 bps more to end the year at 4.25%. Fed forecasts ended up being 75 bps, and 125 bps more. Not that much of a difference. Still the markets fell. Stocks partly didn’t like Powell at the press conference around 310pm ET saying the housing market needs to go through a correction to get back to normal price growth. Not sure why the Fed Chair is talking about the value of American’s homes. At the end of the week, stocks continued to crash at a speed and total decline that we used to call a financial crisis. Financial crisis that the Federal Reserve is supposed to steer the economy through. Instead, they are going to continue to raise rates rapidly. The Friday S&P 500 YTD loss 22.5% versus -23.1% worst on June 16.
Friday, September 16, 2022
We thought the stock market’s reaction to Powell at Jackson Hole was bad enough, but now the one-day reaction to the 0.6% core CPI news for August on Tuesday eclipses that. The market reaction seems to be, forget the recession, there’s too much inflation here now and still coming, so the Fed is going to raise rates higher than 4%, at least in their outer-year forecasts next week. The CPI headline miss was -0.1 expected and 0.1 actual, core CPI miss 0.3 expected and 0.6 actual. Market reaction seems typical for events like this: Target with too many inventories, and FedEx withdrawing forecasts (didn’t they just raise the earnings forecast in June?). Stocks look like an over-reaction, but the problem remains how high will the Fed funds rate go, only 2.5% at the moment. 10-year yields volatile, but amidst the chaos closed the week at 3.45%, still below where Fed says its target rate is going.
Friday, September 9, 2022
Treasury yields rose this week. More talk of the Fed funds rate going to 4.0% this year, but yields still don’t know how to price this or won’t. In other Fed tightening cycles, 10-year yields have tended to stop around the same level as the Fed’s final rate hike. Maybe bonds think inflation has peaked, or perhaps traders are weighing the risk of a sharper economic slowdown. Canada isn’t too far north of us and we were surprised to see employment has dropped 3 months in a row: a recession sign.
Stocks rallied back after falling 10% since mid-August. Far enough. The low was Tuesday with 10-year yields jumping 15 bps and the dollar hitting new highs. Most of the move looks technical, the downtrend line from August broke on Friday’s close. Wonder what the Minneapolis Fed President thinks after being happy to see stocks fall 3.4% after Jackson Hole. Probably not a good policy for the Fed to hope for a weak stock market. Stocks do tend to look a year or two down the road.
Friday, September 2, 2022
Stocks kept falling this week as Treasury yields kept rising. The market hasn’t figured out where 2-year or 10-year Treasury yields should trade if, as Cleveland Fed President Mester said again this week, they move rates to 4% and keep them there all next year. The 10-year yield peaked at 3.5% back in June when the Fed did its first 75 bps rate hike to all of 1.75%. The markets thought the labor market wasn’t as strong, jobs, unemployment, wages, and yields came down, especially in the short-end with the 2-yr yield dropping 11 bps to 3.40%. The S&P 500 was up as much as 1.3%, but news headlines shortly after 12 noon “Gazprom says Nord Stream to stay shut in blow to Europe” sent stocks lower. August Fed funds futures (adjusted) are still close to 50/50 between a 50 or 75 bps Fed hike on September 21—3.19% Thursday, 3.145% Friday. 3.145% is 58% chance of 75 bps.
Friday, August 26, 2022
A shocking turn of events this week. On Friday, the S&P 500 fell back more than a third from its long rally from the June 17 low which puts the uptrend in jeopardy. Recession isn’t here so the Fed is still pushing rates higher, is that what this is all about? We might have known that already, although Powell turned thumbs down on market recession talk, two consecutive quarters of negative GDP and all, saying today, “While the latest economic data have been mixed, in my view our economy continues to show strong underlying momentum.” Okay. The yield curve flattened Friday thinking more rate hikes. At Friday’s close 10-year yields were 3.04% and 2-year yields were 3.38%. Are more rate hikes coming? Latest Fed forecast is 3.5% this year, 3-7/8% in 2023. New update September 21. Beware. Powell waits for more data on whether to go 75 or 50 bps: October Fed funds adjusted is 3.155%.
Friday, August 19, 2022
Bond yields moved higher this week continuing the trend. Yields fell on the second quarter of negative GDP late in July for a few days, recession meaning the Fed will halt, but Fed speak continues to say they are still going. The UK inflation report on Wednesday at 2am ET also helped push yields higher. 10-year yields reached 3.0% on Friday with bond investors trying to price in a 3.5% Fed funds rate at the end of the year, 100 bps higher than today. The September 21 Fed decision is still split between 50 or 75 bps based on October Fed funds futures. Stocks fell 1.3% Friday and we hope tech didn’t drop on the 10-year yield’s approach to 3.0%. Stocks also fell hard on Wednesday’s higher inflation out the U.K. at 2am ET. There’s a weekly downtrend line that stocks bounced off of at the week’s 4,325 S&P 500 high on Tuesday. We will see if it can get through there next time.
Friday, August 12, 2022
New high this week for stocks on the rebound from the S&P 500’s 24.5% high-low recession magnitude loss. The Wednesday 0.0% CPI report following a 1.3% jump last month was the catalyst with the S&P 500 rallying 2.1% on the day. Stocks closed Friday above the 4,227 50% retracement of that 24.5% drop, encouraged by market lore that the bear market is over once stocks come back more than 50%, i.e. they don’t revisit the bottom again. Except for the Global funding crisis in the summer of 2007 before the recession with a smaller 11.9% decline: stocks rallied back through the 50% retracement and made a new record high before collapsing over 50% in the Great Recession and financial crisis. Bond yields headed back up despite 0.0% CPI: some Fed officials said they aren’t done. Fed funds futures are close to evenly split between a 50 or 75 bps rate hike on September 21.
Friday, July 22, 2022
Recession level jobless claims Thursday 830am ET brought bond yields down from the 3.07% high for the week, 15 minutes after the ECB 50 bps surprise, closing Thursday at 2.88%. Incredibly, for a second straight month, you had to be up at 315am ET Friday for France manufacturing PMI, falling below 50 (contraction) to 49.6 from 51.0 expected. Bonds were rallying big time before the 945am ET July US PMI for services at 47.0 versus 52.7 in June. Market is thinking recession will stop the Fed rate hikes. Stocks broke higher this week until Friday. Snap earnings Thursday after the close sent the stock down 39.1% on Friday (slowing demand for the online ad platform), dragging down tech; the S&P 500 fell 0.9% on Friday, down 16.9% YTD. The market’s worst close this year was 23.1% on June 16. Things are looking up for bonds and stocks, with the economy heading down, for now.
Friday, July 15, 2022
June CPI was the economic report of the week and the 9.1% year-year figure sent 10-year yields to their 3.07% eco news high for the week on Wednesday, before Friday’s 2.92% close. The bond market has recession on the brain, and more inflation means more Fed rate hikes that could bring on recession. The yield curve flattened dramatically a couple hours after CPI: 2s/10s closing -22 bps Wednesday from -7 bps on Tuesday. If the yield curve remains negative on average for July, the earliest a recession would occur would be 13 months later which means August 2023 based on our proprietary model. The S&P 500 keeps finding support at 3750 for some reason, no matter what the news. Stocks appeared to welcome Fed Governor Waller’s no 100-bps comment on Thursday morning, and lifted further after retail sales rose 1.0% Friday, forgetting it’s not real after 1.3% CPI.
Friday, July 8, 2022
Inconsistent reaction to news, like is recession good or bad for stocks, but S&P trying to climb higher if no (huge) earnings surprises. Jump in like we did, the water's fine. S&P 500 closed down 18.2% YTD on Friday, up from weakest close for the year -23.1% YTD on June 16. 10-yr Treasury 3.08%. 2s10s curve inverted starting Tuesday this week forecasting a recession months from now.
Tuesday, July 5, 2022
Nice headline. "Dow recovers from 700 point drop as investors look for signs of recession." Write your own. Fed cut rates in 2007 before the recession and stocks went to a new all-time high. Except the S&P 500 eventually fell 57.7% from that all-time high as the financial crisis and Great Recession got rolling.
Friday, July 1, 2022
Hard to believe 10-yr yields closed 2.89% early Friday for the July 4th weekend versus the year’s 3.50% high on June 14. Market doesn’t know Fed thinks it is going to double its 1.75% rate by the end of the year. We thought bonds had learned better, but not the case: whenever the ISM manufacturing index comes down from the high 50s or 60s closer to the 50 line that separates an expanding manufacturing sector from a contracting one, the bond market rallies. Friday’s yield low of 2.80% was made after the ISM report. Stocks made their low at the same time as bond yields with stocks confused whether recession means the Fed stops rate hikes or recession is bad for earnings. Speaking of recession, GDP fell 1.6% in Q1, and the Atlanta Fed GDPNow Q2 guess went from +0.7 to -1.0% after consumption Thursday, and to -2.1% after ISM.
Friday, June 24, 2022
S&P 500 left a few gaps in the charts this week which we hope won't be revisited down below. 3.1% rally on Friday with stocks up 1.5% before the 10am ET Michigan Consumer survey saying long-term inflation expectations were revised down to 3.1% from 3.3% two weeks ago in preliminary report. Powell said the 3.3% number a factor in the sudden shift to a go-big 75 bps move at the June meeting. Market discounts 2.5% Fed funds rate July 27 and 3.0% Fed funds rate on September 21.
Friday, June 17, 2022
S&P 500 closes 3674.84 down 22.9% YTD. Fed not budging with higher rates forecast of 3.5% by December. Waiting for recession to stop them. In the meantime, maybe regulators can force banks to pay interest on savings accounts. Not 0.07%, we were thinking the 1.58% daily effective Fed funds rate on June 16 after the Fed hiked rates to 1.75% on Wednesday. Don't waste time with gasoline prices or building new refineries that no community will allow. Pay interest on savings now. Inflation hedge.
Wednesday, June 15, 2022
Stocks traded down like soybean futures Friday and Monday leaving some gaps in the charts. Tuesday's 2022 low held during today's trading with the 2pm ET Fed meeting announcement. 75 bps expected after Wall Street Journal "leak" Tuesday afternoon before stocks closed. 3.5% Fed funds rate forecast at the end of the year not expected. Treasury yields fell anyway with 10-year close 3.29%. S&P 500 down 20.5% YTD.
Friday, June 10, 2022
CPI worse than expected and stock sell-off left a gap in the charts as CPI is released 830am ET before 930am ET stock market open. A gap that will need to be filled if you are an optimist. Sell-off couldn't break the old low close on May 19 with its down 18.2% YTD. May 19 close 3900.79, today 3900.86.
Thursday, June 9, 2022
Stocks stayed within last Thursday, June 2nds range until breaking out to the downside today. Last Thursday's low was hit when Brainard was talking about not being able to pause at the September meeting. That news was shrugged off but today the S&P 500 broke that low when it was down 1.0% on the day and ended 2.4% lower. Maybe some nervousness ahead of CPI inflation tomorrow, but the big news sending rates up and stocks down in Europe was the ECB meeting where indeed they will hike rates in July.
Friday, June 3, 2022
Felt like a huge day after 390K payroll jobs that were too strong to keep the Fed from marching rates higher. Except S&P 500, even if falling 1.6% Friday close-close from Thursday, is still trading within the wide trading range high-low days on Wednesday and Thursday this week. Hate to forecast, but it looks like stocks will move higher. Market is holding.
Wednesday, June 1, 2022
Bond rally down from 3.20% on May 9 petered out this week. Jump in yields really started Monday when Americans were doing Memorial Day barbeques. A little earlier actually as European bond yields rose early hours New York time Monday on German inflation. The Fed governor Waller "several" 50 bps moves was 11am ET Monday, but was written up as a reason for the higher bond yields Tuesday. ISM manufacturing wasn't down it was up, and job openings remained high at 11.4 million at the end of April, and this sent 10-year yields to a 2.91% close tonight.
Monday, May 30, 2022
BOJ's Kuroda: Don't expect cost-push inflation to lead to sustainable price hikes. This was Bernanke's idea as well in the housing bubble inflation years with crude oil shooting higher. Idea was for central bank not to chase commodity price inflation with rate hikes. Falling commodity prices at consumer level could bring down inflation in next several months we guess. Meanwhile, core PCE inflation monthly increases definitely tamer already at 0.3% increases in February, March, April.
Friday, May 27, 2022
Stock rally continues. The market tried to break the 20.9% low early in the week. Couldn't even post a new low close for the year. Today's rally is stronger consumer spending and hint inflation has turned or at least cannot get much worse. 10-year Treasuries seem to want to rally, but cannot break through. Treasury trading closes early for Memorial Day weekend at 2pm ET today.
Friday, May 20, 2022
Hawkish Fed this week and this month's options expiry is today. New low for S&P 500 this year hit earlier in session down 20.9% from all-time highs. Started with Target earnings Wednesday morning. Won't be long now. Fed's anti-inflation measures and aggressive messaging is going to break/brake/break the economy. Bet on it.
Friday, May 13, 2022
On Thursday, S&P 500 down 19.9% from record high now discounts a recession. 10-year yields close 2.92% on Friday. Guessing game remains how high Fed funds rate (it's only 1% now) needs to go to slow the economy and stop additional rate hikes from the Fed. Bond yields okay here sort of if Fed doesn't go higher than 3.5%.
Wednesday, May 11, 2022
Stocks holding Tuesday's low where S&P 500 down as much as 17.9% from the highs this year. CPI worse than expected, but still looks like it may have peaked at a very high level.
Friday, May 6, 2022
10-year yield closes 3.14% after 428K jobs report. Higher bond yields depress stocks. Talk from former Fed officials about the need for a 3.5% Fed funds rate (2.5% supposed to be neutral for economy) to fight inflation is lifting bond yields. No sign of an economic slowdown yet. S&P 500 new 2022 closing low down 13.5% YTD. The low from Monday held today so the total high-low decline in 2022 remains 15.7% at worst point. Every recession since 70s has seen stocks fall at least 20%.
Thursday, April 28, 2022
Stocks were unable to close below the March 8 4170.70 low for the year earlier this week, although still time as this is written Thursday morning. Real GDP fell 1.4% in Q1 2022 reported this morning, although the data show a possiblity of a better core PCE inflation number due out on Friday morning. For all the worries about world growth, S&P hasn't fallen 20% yet, where a 20% sell-off or more is the norm for every recession since the 1970s.
Thursday, April 21, 2022
A reversal of fortune for stocks today despite last night’s Tesla earnings with Tesla closing 3.2% higher today. Sell-off being blamed on Powell as no one else is around although stocks fell at the same basic rate all day long. S&P 500 was up 1.2% on the day at the opening highs, and was down 0.6% on the day at 1:17pm ET when Powell was speaking on an IMF panel saying front-loading was necessary because of higher inflation and 50 bps would be on the table at the May 3-4 meeting. Yes that’s it, and 50 not a big deal given August Fed funds futures have discounted 50 bps rate hikes at the next three Fed meetings. S&P 500 closed down 1.5% and if this was the futures market, we’d say stocks are getting ready to break sharply lower.
Thursday, April 14, 2022
End of holiday shortened week. 10-yr yield 2.83% versus 2.66% last week Friday April 8. Fed funds futures and market expectations still okay with 2.5% Fed funds rate at the end of this year, including 50 bps rate hikes on May 4 and on June 15, and we guess 25 bps moves the final 4 meetings of the year. No real sign of a slowdown yet in the economy even with retail sales ex-gasoline falling 0.3% in March as reported today. Sleeper stat is nonfuel imported goods prices reported this morning. In the year ending March 2022 prices are up 7.5% and the year before ending March 2021 these prices were 3.8% higher year-on-year. Inflation a global problem, not just USA, USA, USA.
Friday, April 8, 2022
10-year yields made a new 2022 high at 2.73% on Friday. You know the Fed is getting tough when Fed Governor Brainard wants to wage war on inflation. She spoke Tuesday before the Opportunity and Inclusive Growth Institute that is at the Minneapolis Fed. There won’t be any economic growth if the Fed raises the cost of borrowing with massive interest rate hikes and an aggressive balance sheet wind down. Brainard is waiting on a confirmation vote to replace Clarida as Fed Vice Chair later this month. Bond yields went higher on Thursday, possibly mortgage-hedge sales with Wednesday’s close above 2.50% the first time. Bullard moved yields higher still on Thursday with a 3-3.25% Fed funds rate on his wish-list in the second half this year. Just sticking with the next three Fed meetings, August 2022 Fed funds futures are discounting two 50 bps rate hikes and one 25 bps move. Stay tuned.
Friday, March 25, 2022
Bonds touched 2.50% today closing at 2.48%. They are priced for a Fed funds rate peak this cycle of 2.5%. The only problem is the Fed funds rate might be there at 2.5% in December this year, the fastest tightening in years. In fact, we used to think 200 bps of rate hikes a year was too much for the economy, but we will see. The shift from we won't tighten to help the recovery to we will aggressively tighten to help bring inflation under control has happened too fast. We will watch for any sign of economic weakness if not recession because of higher rates and higher energy prices.
Tuesday, March 22, 2022
Powell shouted fire in a crowded theatre Monday saying Fed needed to move rates up expeditiously to neutral in a speech with headlines hitting 1230pm ET. He said if they needed to do a 50 bps move they would do it. If they needed to move rates above neutral to slow inflation they would do it. S&P 500 fell 1.1% on what it thought it heard. 10-year yields traded as high as 2.32% on Monday and are trading 2.37% now on Tuesday afternoon. Stocks stop caring about Powell and are moving to new highs.
Monday, March 14, 2022
10-yr yield new high, starting early overnight as European markets opened mostly, 10-yr Treasury close at 2.14% from 2.00% Friday. Something to do with the Fed announcement on Wednesday at 2pm ET about how many rate hikes are coming in 2022. Market expecting 7 more rate hikes, 25 bps at each of the remaining 7 Fed meetings this year, so ending at 2.0% the Fed target rate from 0.25% today.
Thursday, March 3, 2022
Market risks are getting impossible to quantify as the Russian invasion intensifies and looks unlikely to stop. 10-year Treasury yields are 1.84% tonight and S&P 500 at the close down 8.4% year-to-date. Starting to hear Q1 2022 US company earnings will not be as good because Q1 2021 fiscal stimulus falls out of the equation, but...