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Bond Market Strategy
Treasury 10-yr
Yield Trend: The Movie click on image to view movie
If you can't see it, you can't trade.
July 11, 2025
A couple of downdrafts for stocks from the July 3 record on tariff news this week. Stocks fell as much as 1.2% Monday (Trump tariff letters 25% for Japan and South Korea starting August 1 announced around 1220pm ET). New highs on Thursday until Friday’s decline as much as 0.7% on news Canada tariff would be 35%. No one knows when the tariff threats will end, and the tariff effects will take time to affect the trade and inflation data. Trump waited till Saturday morning to put 30% tariffs on Mexico and the EU starting August 1. Bond yields saw a good 10-yr auction on Wednesday, and perhaps some assist with Trump’s 3 percentage points rate cut news at 10am ET. The bond market sell-off, higher yields trend from 4.19% on July 1 is holding with support at 4.34%. Stay tuned. Oh, and Fed Governor Waller who wants Powell’s job said Thursday a rate cut in July would not be political.
July 4, 2025
Bond yields made it down to 4.19% on Tuesday before the stronger Jolts data at 10am ET which extended the rally from the yield peak of 4.63% on May 22. The jobs data on Thursday were stronger than expected as well, sending yields to 4.35%. The stock market made an all-time high on Thursday with the jobs report, but before you count your winnings, S&P futures fell on Friday with the cash markets closed, down 0.6% as Trump readies more tariffs, sending out pay-us letters to those countries he could not make a deal with. The S&P 500 closed up 0.8% on Thursday, a 6.8% year-to-date gain, at 6,279.35. Jobless claims are the only major economic news ahead in the July 11 week as the markets look forward to additional Trump tariff news.
June 13, 2025
The stock market closed above 6,000 on Friday, June 6 jobs day with 139K more jobs in May, although with downward revisions of 95K to March/April, as prices recovered from the Trump/Musk dustup on Thursday June 5 with the S&P 500 down 0.5% to 5.939.30. Stocks remained above 6,000 on a closing basis all this week until Israel attacked Iran Thursday evening, and the S&P 500 finished the week on Friday down 1.1% on the day at 5,976.97. The S&P 500 is up 1.6% YTD after a gain of 23.3% in 2023. 10-year Treasuries came down to 4.41% on Friday from 4.51%, the prior week’s close. There were auctions of 3-years, 10-years, and 30-years, with no apparent reluctance seen on the part of foreign buyers. Indirect bidders, an imperfect proxy for foreign participation, took down 70.6% of Wednesday’s $38.9 billion sale of 10-year notes.
May 23, 2025
The 10-yr Treasury yield hit the week’s 4.63% high on Thursday, as the House passed the Trump big bill, on worries about who would buy the additional debt to finance the forever deficits. Mainly concerns about the participation of foreign investors if less world trade means fewer dollars going overseas that get parked in U.S. Treasuries. Many market worries, but no measurable economic impact yet besides the negative GDP print in Q1 2025. The 20-year Treasury auction was not well-received by investors on Wednesday, but then that often seems to be the case for the Treasury’s 20-year term to maturity. Stocks did not react well to Friday morning’s Trump tweets, first on Apple tariffs, then the 50% tariff on Europe. Stocks closed off 0.7% on Friday at 5,802.82, down 1.3% YTD. 10-year yield early 2pm close on Friday at 4.52%.
May 16, 2025
The stock market started/ended the week with a bang. Treasury Secretary Bessent lowered the China tariffs from 145% to 30% Monday morning, and the S&P 500 rallied 3.3% on the day. Things were going along well, friends of the Administration bidding up stocks on no news Friday, ending the day up 0.7% to 5958.38 which is up 1.3% YTD. But Moody’s announced shortly before 5pm that they would downgrade the U.S. to Aa1 from AAA. The SPY ETF fell 1.0% in after hours trading. Budget-busting revenue estimates for the big, beautiful bill down in Washington appear to be the problem. When S&P first tried this U.S. downgrade also late on a Friday, on August 5, 2011, it was quite a shock as the market was dealing with yet another European debt crisis with stocks tumbling 4.8% on Thursday, August 4. As it happened stocks fell 6.7% more on Monday, August 8, 2011 and that was the low-close for that credit event. Whew. Ratings agencies have their own complex metrics, but we note the Federal debt to GDP ratio was 92.2% in Q2 2011 and is now 121.9% in Q4 2024.
May 9, 2025
The stock market was little changed this week with the market overly hopeful that the trade talks are on. The President offered an 80% China tariff, down from 145%, but 80% obviously shuts trade down. Unfortunately, markets are now thinking US-China, or China-US talks in Switzerland this weekend are critical, setting themselves up for disappointment, but then again if investors cheer a reduction from 145% to 80% who knows how markets react. Speaking of who knows, the first trade agreement, with the U.K. lifted markets Thursday, the same U.K. that had a 2024 $11.5 billion wrong-way, not-ripping-us-off trade surplus in goods with the U.S. The problem with tariffs is the same with any price that gets pushed higher; prices go up enough and people stop buying, or in this case, people stop shipping to the U.S. and imports go down meaning customs tariff collections go down not up. Stay tuned.
May 2, 2025
The stock market made back to the April 2 Liberation Day close just before the Rose Garden announcement. It was a tariff news week again with the auto tariff “flex” helping shares Tuesday even as automakers warn of billions lost flex or not. We had a recession starting with the first quarter drop in real GDP, but stocks rallied back after falling to the week’s low. Microsoft and Meta earnings were appreciated Wednesday after the bell. Year-to-date the S&P 500 was down just 3.1% YTD on Friday which is a more comforting figure for the public, given the 2024 gain of 23.3%. Still, it looks like a long way to go back to the highs with the weekly chart here. The stock market highs on Friday were about 12 noon when a story about China weighing an offer on new curbs on fentanyl to restart trade talks. 10-yr yields closed Friday at 4.31%; 2-yr up 12 bps to 3.83% thinking jobs report rules out Fed cuts.
April 25, 2025
The stock market made it halfway back on Friday from the losses that totaled as much as 21.3% from the year’s February 19 high. Year-to-date the S&P 500 was down 6.1% on Friday to 5,525 which is a more comforting figure for the public given the 2024 gain of 23.3%. Still, it looks like a long way to go back to the highs with the weekly chart here. The focus in Friday’s trading was the 50% retracement level at 5,491. For bonds, there is continued discussion of what happens if the trade war leads to a drop in trade flows with fewer dollars swirling around the world, will foreigners stop or simply not be coming up with as many dollars to park in those largest, deepest, safest markets in the world which is U.S. Treasury securities. Same story for bonds. Even if the Fed cuts rates from 4.5% to 3.0%, the yield curve steepening should keep 10-yr yields north of 4%. 10-yr yield closed at 4.24% on Friday.
April 18, 2025
The daily trading ranges for stocks way down this week versus the week before. How could they not? Some excitement on Wednesday, but it is a holiday week with bonds closing 2pm ET Thursday and all markets closed Good Friday. Same story. Equities fell 21.3% recession-magnitude February 19-April 7 and retraced 49.2% on the tariff pause for some countries on April 9, but that was it. We want to shift back to the fixed income “fwdbonds” graph, but frankly, anything could happen to bonds to upset the apple cart from the fiscal policies pushed by the incoming Trump administration. If only we knew how this could end up, and of course, what if foreigners stop buying or even sell their $8.5 trillion of Treasuries outstanding. 10,000 baby boomers born 1946-64 retiring daily want to know what to do. Well, the stock market has only fallen by 50% twice since the 70s. 50% 2X since the 70s. Repeat.
Friday, April 11, 2025
Monday and Tuesday were down hard, but with the rally highs each day on hopes for a reprieve from the tariffs which came to naught. The huge daily matching trading high/low ranges, Monday 7.8%, Tuesday 6.8%, would ordinarily look like a market bottom, but who knows which way the White House will swing next. Well, Trump 2.0 wants factories to come back is the bottom line. The 21.3% loss from the highs this year to the Monday low is now recession-magnitude. Heck, the market only fell as much as 20.4% in the 1990-91 recession, aren’t we done yet? No, we’re not done yet in terms of volatility even if the week’s Monday low held. The range on Wednesday was a stunning 9.7% starting with China upping its tariffs at 7am before Trump dropping the reciprocal tariffs on all but China around 1pm. That’s only Wednesday and we did not get to bonds that hit 4.59% Friday.
Friday, April 4, 2025
We hardly know what to say this week. If there is going to be a recession from Trump’s trade war with the world, a recession magnitude loss for stocks is 20%. Through Wednesday the S&P 500 had fallen a max of 10.7% from the February 19 record high. But it was chaotic after the close on Wednesday when Trump gave his Liberation Day trade remarks. Stock futures thought they heard him say tariffs of only 10% and rallied up 1.2%, but then the poster board came out with tariffs at absurdly high levels for many countries and futures went into reverse, falling 3.6% from those highs in the after session. China matched the 34% tariffs the US put on them, and stocks tumbled further on Friday with investors barely noticing the most important economic number in the world: U.S. nonfarm payroll jobs. On Friday, the S&P 500 fell as much as 17.5% from February 19; bonds closed at 4.01% (3.86 at low).
Friday, March 28, 2025
We had flex tariffs last Friday, narrow tariffs on Monday, then finally the auto tariffs on Wednesday which rained on the parade and brought stock prices back down. The S&P 500 rally from the March 13 lows of the Trump recession sell-off is big, but it has not made it back through the 50% retracement level of 5,826. Bond yields went their own way at times, lifting with the narrow tariffs initially, but seizing on the S&P PMI “stronger economy” data at least for services at 945am ET on Monday to move even higher. Some of the yield rally to 4.37% on Tuesday was retraced with the weaker consumer confidence reading at 10am ET on Tuesday. Skip to Friday where the economic reports brought bond yields and stocks down. The S&P 500 dropped 2.0% Friday, and 10-year yields fell 13 bps to 4.24%.
Friday, March 21, 2025
We would like to go back to a bond chart, but nothing is happening. No change in Fed rate forecasts: they still see a neutral rate of 3% which means when the curve normalizes to a positive slope, then the 10-yr yield will still be 4.25% if they drop rates 150 bps to 3.0%. No recession, then no chance for even lower Fed rates than 3%; 10-yr yields were 3.6% last September on market recession fears. No new recession fears despite the early Trump 2.0 policies, but it is early days yet. Stocks rallied on retail sales on Monday (0.2% Feb, -1.2% Jan) unclear why. High for week was during Powell press conference. Consumers/businesses report tariffs are the reason behind their higher inflation fears, but the market heard Powell say it could be the case that the tariff inflation effect will be only temporary. At the end of the week, markets heard Trump say the word flexibility about tariffs. 10-yr closes 4.26%
Friday, March 14, 2025
It rained early in the week in the markets mostly on wild trade tariff headlines. There was a respite on Wednesday with core CPI coming in less at 0.2%, but the high on the day was set in futures markets and was only there for a minute. Back to heavy tariff rain on Thursday with Trump saying we’ve been ripped off for years and he would not bend. The S&P 500 fell as much as 10.5% from the February 19 high on Thursday. Friday’s rally had many “reasons.” Schumer would not vote for a Federal government shutdown, bargain hunting, China stimulus coming on Monday, good news headlines on Russia Ukraine. Bond yields were not as volatile. The low yield was about 4.15% on Tuesday, which is a long way from the 3.60% yield last September when bonds were preparing for recession and multiple rate cuts. Fed funds futures look for a 25 bps rate cut to 4.25% on June 18.
Friday, March 7, 2025
Hard to match the many news headlines up with the stock market price action this week. This included the big drop with a lag to the payroll jobs data and the climb back as well. Stocks bottomed about ten minutes before Powell spoke at 1230pm Friday, but the White House was also making statements or about to. For the move down from February 19 this year, the S&P 500 fell as much as 7.8% on Friday to 5,666.29. Rigged game. Bond yields broke 4.20% on Monday on the ISM manufacturing weakness in new orders and then Atlanta Fed GDPNow revised to -2.8% in Q1 2025 from -1.5%. Bond yields hit the 4.11% yield low for the week on Tuesday when stocks were crashing on more Trump tariff news, but yields recovered unlike stocks. On Wednesday German bonds had the worst day since 1990 on defense spending plans with 10-yr yields up 30 bps to 2.79%. 10-yr US closes week 4.30%.
Friday, February 28, 2025
Stocks fell exactly 0.50% on Monday, down hard in the last ten minutes of trading, shortly after Trump said the tariffs on Mexico and Canada were still coming. Hope so. On Tuesday, consumer confidence fell and the S&P 500 eventually fell as much as 1.2% on the day. Bond yields opened lower Tuesday night and were 4.34% around 3am Tuesday when Bitcoin collapsed through $90,000; the reason was probably technical selling when the 4.40% resistance level broke. On Wednesday, around 1230pm Trump said 25% EU tariffs on autos were coming and stocks dropped from gains to losses. More Trump tariff news Thursday (Truth Social) at 847am sank the ship by the end of the day. Incredibly, all was forgotten with the huge moment-of-close buy orders 10 minutes before the closing on the final trading day of the month. S&P 500 down 1.59% Thursday, back up 1.59% Friday. Rigged game.
Friday, February 21, 2025
Wednesday. Somehow the Walmart earnings at 7am ET Thursday got talked about as incredibly bearish for consumers and the economy, and stocks tumbled at the 930am ET Thursday stocks opening in cash markets. Not much for bonds until Friday at 945am ET with the release of the services purchasing managers index from S&P (49.7p Feb vs. 52.9 Jan) which brought yields down sharply. This was before the weak consumer sentiment data at 10am from the University of Michigan, existing home sales at the same time as well. Stocks did a copy-cat trade from Thursday, falling at the 930am cash opening, and proceeding down at the same speed regardless of the economic data. At Friday’s close S&P 500 up 2.2% YTD, and 10-year yields at 4.43%.
Friday, February 14, 2025
Investors were mostly bewildered by the long-awaited reciprocal tariffs announcement by the President Thursday which at least are “weeks and months away.” These tariffs might be slightly inflationary in the short run, but in the long run the country will be better off producing the $3.3 trillion of imported goods right here in the USA, if hundreds of new factories can be built in a timely manner and any affordable, skilled workers can be found to run the factories given the slowing native-born population trend. We made up part of that last sentence, but the stock market went to a new high after Trump 2.0’s remarks on Thursday perhaps on the weeks-months delay. The S&P 500 approached the January 24, 2025 record high of 6,128.18 on Friday, after -0.9% retail sales brought 10-yr yields as low as 4.45%, getting up to 6,127.47 at one point. Friday close S&P 500 +4.0% YTD, 10-yr 4.48%.
Friday, February 7, 2025
Stock futures fell as much as 2.1% early Monday after the Trump trade threats became reality. Stocks recovered starting around 1020am Monday when the trade tariffs against Mexico were paused. There was a gradual recovery in stocks through early Thursday despite a temporary drag from the Alphabet earnings after the bell on Tuesday with perhaps ISM services index “weakness” at 10am on Wednesday helping. (Jolts job openings also fell Tuesday aiding the recovery.) 10-year yields were up near 4.60% early Tuesday, dropping over the next 24 hours; the Jolts data contributed, with a final kick down on the Treasury quarterly refunding announcement where there won’t be much change to the bonds and notes auction schedule any time soon. Markets weathered the soft 143K jobs number but fell on Michigan sentiment; the coup de grace was the Trump headline on reciprocal tariffs.
Friday, January 31, 2025
Stock futures fell as much as 3% early Monday morning on the AI China news, and this brought bond yields down sharply to 4.54% after closing last week at 4.63%. 10-year yields rose back to almost 4.60% on the Fed meeting press statement at 2pm ET on Wednesday. They dropped a sentence about making progress on the 2% inflation goal. Markets went back and forth on speculation about the Canada and Mexico 25% tariffs. Investors thought they were in the clear with the S&P 500 up 0.8% on Friday, before no, the President was still going with tariffs on February 1, and stocks fell at 120pm ET on the headlines. Trump later said in a press conference there was nothing countries could do to stop the tariffs. Going way back. Google it. We were at our richest from 1870 to 1913 when we were a tariff country. S&P 500 fell 0.5% on Friday, up 2.7% YTD. Bonds closed at 4.54%.
Friday, January 24, 2025
New high for the stock market on Thursday this week as we predicted in last week’s award-winning newsletter. It was hard to keep up with the market’s thinking this week after being closed Monday for the changeover in Presidents and Martin Luther King Day. Tariffs of 25% for Canada and Mexico still seem to be coming on February 1, perhaps 10% for China at some point later, it is hard to know. The President spoke to Davos at 11am ET Thursday, and it is still hard to know. He demands that interest rates drop immediately and asked Saudi Arabia and OPEC to bring down the cost of crude oil. The S&P 500 went to a record high on Thursday, but this was really in the last 10 minutes of trading before the 4pm close. Bond yields closed the week at 4.63%, exactly where they were the week before at the Friday, January 17 close. The Fed meeting, PCE inflation and Q4 2024 GDP are ahead.
Friday, January 17, 2025
Crazy stock market reactions to the inflation data this week, but then again, share prices had been beaten down pretty good. S&P futures even jumped 0.7% on Tuesday’s PPI report, before the Wednesday 0.2% core CPI reaction of 1.2% in the first half-hour. The Fed needs a lot more 0.1s and 0.2s each month to get inflation down to 2% target. Stocks closed the gap left over from the November 5 Election Day rally, then took off on CPI following bonds. Still wondering how 0.2% core CPI can be so exciting, but stocks did this rally thing the month before on December 11 with core CPI even higher at a 0.3% monthly change. On Thursday, Fed governor Waller said CPI was good and he could see a rate cut in the first half of the year which brought bond yields down, helping stocks. For the record, the S&P 500 fell 5.4% high-low from early December, in recovery, but failed at the 6,000 line Friday.
Friday, January 10, 2025
The 256K jobs report was bad enough, but then it appears the Michigan sentiment survey, the long run inflation expectations jump, somehow dragged down stocks to a new low at 10am ET (down 1.9% on the day), even though the bond market did not seem interested. 10-year yields did rise as high as 4.79% on the jobs report on Friday. Bonds did not like inflation earlier in the week on Tuesday when the 10am Jolts, ISM services data were stronger and the services inflation in that report lifted yields from 4.62% to 4.69%. Then on Wednesday a 630am CNN story about Trump going to use emergency powers to push through import tariffs pushed the 10-yr yield as high as 4.73%. Fedspeak further added to market bearishness with many Fed speakers sounding like there would be no more rate cuts in 2025. Various stories about how the December meeting’s rate cut was a close call, but we remember that just 4 out of 19 Fed officials put down no December rate cut in their forecasts.
Friday, January 3, 2025
Not sure why much was made about the two back-to-back years of 20% stock market gains. That’s right up there in importance as the market stats back to the 1950s on the Santa Claus Rally: the final 5 trading days of last year and first 2 trading days of the year 2025. The Fed only penciled in two rate cuts in 2025, and market odds of a 25 bps rate cut to 4.25% at the March 18-19, 2025 meeting are fifty-fifty based on April 2025 Fed funds futures. Perfectly clear. Happy New Year.
Friday, December 20, 2024
Chaos down in Washington equals chaos in the stock market. The S&P 500 fell as much as 4.4% from the December 6 high to the early Friday morning low. House votes taken to get beyond the 1201am ET Saturday deadline for a Federal government shutdown failed as well and was part of the equity markets fears, but mostly it was the Powell press conference outlining fewer rate cuts in 2025: two cuts ending at 4.0% were forecast versus the September meeting forecast of four cuts and 3.5% Fed rate at the end of 2025. 10-yr Treasury yields moved up as high as 4.60% Thursday afternoon from last week’s 4.40% close. The November core PCE inflation reading of 0.1% (0.2e) rallied stocks and bonds, perhaps inflation looking better than the November 0.3% core CPI on December 11. Volume dwindled Friday afternoon: S&P 500 closed Friday up 1.1% had been 2.0% higher intraday.
Friday, December 13, 2024
A big jump in 10-yr yields this week of 23 bps to 4.40%. The bond rally from the 4.51% 10-yr yield high on November 15 is apparently over. There seems to be a sense of dread when it comes to the president-elect’s pro-growth agenda and what additional fiscal stimulus means for the interest rate outlook. The Fed is expected to cut rates fewer times next year when the forecasts come out at 2pm Wednesday, December 18; another 25 bps rate cut to 4.5% is discounted. There were Treasury auctions this week helping to push yields higher Tuesday, Wednesday, Thursday, 3-year, 10-year, 30-year securities, respectively. A reminder of more auctions to come, especially if the FY25 Federal deficit cannot even be held at the $1.8 trillion FY24 deficit. The stock market rallied on the 0.3% core CPI report Wednesday, for some reason, but could not break 6,100 for the S&P 500 again this week.
Friday, December 6, 2024
With the 227K jobs number news of the week on Friday, the bond market had a confused response at least in the first minute of trading with 10-yr yields about 4.187% at 830am data release time. Yields fell as low as 4.13% eventually, before closing at 4.17% at the end of the week. The big move down in yields this week was from 4.28% around the NY open on Wednesday, December 4. On Wednesday, the ISM services index fell, and the French government lost a no-confidence vote. Yields fell, so much for saying the bond market thinks Trump’s economic agenda is inflationary. The 10-yr yield peak was 4.51% on November 15. The lesson is the bond market does not think. The stock market this week went its own way higher for the most part with record high closes each day except for Thursday. The S&P 500 closed Friday up 27.7% for the year, stocks were up 21.2% YTD on Election Day.
Friday, November 29, 2024
Like the good old days. The first “tweet” after 6pm ET Monday on trade matters even before the president-elect takes office. The stock market eventually ignored the threats of 25% tariffs on Canada and Mexico imports, and 10% more for China. The China tariffs did not begin until 2018 and were ramped up after Trump’s “I am a tariff man” tweet December 4, 2018 which was one of the factors that caused a 20% drop in the stock market and made Powell shift away from further rate hikes beyond 2.5%. Customs duties peaked at $99.9 billion in FY 2022 when the calendar year imports from China were $536.3 billion. Imports from China are running $322.2 billion in the first 9 months of 2024.
Friday, November 22, 2024
The market is holding up near the highs with only minor updates on the outlook from the economic indicators released this week. Russia and Ukraine brought geopolitical risks back, mostly on Tuesday, shooting missiles at one another. The 10-yr year is holding above 4.40% after lifting from 4.29% on Election Day. For all the concern about the president-elect’s economic agenda, yields have not adjusted that much higher for now. Perhaps whistling in the dark or maybe thinking import tariffs and tax cuts will not get fully executed. For stocks, last week the S&P 500 tested the gap left when Trump won the election held Tuesday, November 5, but did not try again this week, even with the Russia Ukraine news on Tuesday that brought bond yields down. The S&P 500 closed up 25.1% YTD on Friday, following on the 2023 gain of 24.2%. Not sure stocks are Fed rate cut dependent.
Friday, November 15, 2024
Market sentiment shifted back in the direction of the president-elect’s plans for the economy being inflationary with tariffs on what was $3.1 trillion of imported goods in 2023. It is easy to imagine $500-700 billion in custom duties coming in versus the $77.0 billion collected in FY2023, if it happens. But it may never happen the way the market seems to imagine it. Does it ever? At the moment, the concern seems to be on Powell saying at 3pm ET Thursday that he was in no hurry to cut rates. That’s fine, but the market is still discounting 15.5 bps of a 25 bps of a rate cut on December 18. 10-yr Treasury yields hit a new high this week on the fiscal fears/tariff inflation threat, which also hurt the stock market where the S&P 500 fell 1.3% on Friday. Washington wants to cut deficit spending, but if it just holds at $1.8 trillion from FY2024, it will keep the national debt to GDP ratio steady and manageable.
Friday, November 8, 2024
The market for one certainly celebrated the outcome of the presidential election partly as the downside risks went away with a quick decisive vote count and partly looking forward to what lies ahead maybe. Bank stocks looked forward to less regulation in Wednesday trading with Chase +11.5%, Citi +8.4%, Goldman +13.1%. The S&P 500 was up 2.5% Wednesday looking forward to a lower corporate tax rate, pro-business administration. Hard to know what to say. 10-year Treasury yields jumped 15 bps to 4.44% on Wednesday looking forward to more deficit spending. April Fed funds futures are not as friendly for 50 more bps of rate cuts to 4.25% by the end of the first quarter next year. We thought the president-elect liked low rates. Stay tuned. The best is yet to come. Trade friction, higher inflation too.
Friday, November 1, 2024
Extreme volatility in 10-yr yields Friday continues the fiscal worry trend with upcoming supply from the Treasury November refunding announcement this week. The surprisingly weak 12K payroll jobs number (well, 100K “expected” storms/Boeing strike) brought yields down to 4.22% within seconds on recession guesses and the need for big Fed rate cuts, but that reversed sharply by nearly 20 bps with new 10-yr yield highs ahead of next week’s Treasury auctions, a Fed meeting and the national election results. A stunning reversal of fortune for the 3.6% 10-year Treasury yield the day before the Powell surprise 50 bps rate cut. Okay slow down. The election is Tuesday, November 5, Treasury 3-yr, 10-yr, 30-yr auctions, Mon, Tues, Weds. Stocks fell somehow after Meta and Microsoft earnings on Tuesday evening and were unable to recover Friday, partly on 4.40% 10-year yields.
Friday, October 25, 2024
10-yr Treasury yields jumped above 4.20% at the start of the week on Monday, and closed above this level, close to psychological support/resistance, all week. Fiscal fear is said to be the reason after the FY2024 1.8% trillion Federal budget deficit announced prime-time at 4pm ET Friday afternoon, October 18. More supply ahead to push bond yields higher with the Treasury’s quarterly refunding announcement next week, Wednesday, October 30 at 830am ET, and the Treasury quarterly new cash need estimates released Monday, October 28 at 3pm ET. The stock market reacted negatively to the rise in bond yields, but managed to rally back, almost breaking the record high close of 5,864.67 (Friday, October 18) in early Friday trading before falling back to unchanged on the day. Stay tuned. First look at Q3 real GDP for the “world’s best economy” and the jobs report coming up next week.
Friday, October 18, 2024
The 254K jobs report changed the trend and sent 10-yr yields up to 4%. If the Fed is not going to send rates back to zero again in a recession, then the 10-yr yield should spread much higher above the Fed rate. Thursday, October 10 was a confusing day with core CPI higher at 0.3% and the jump in jobless claims showing economic weakness potentially even with the Hurricane Milton impact; 10-yr yields also moved higher when Atlanta Fed President Bostic said he could skip doing anything at the November meeting. Bond yields came back down early in this holiday shortened week on Tuesday, with crude oil falling on stories Israel would not bomb Iran refineries, and even a soft-print on Canadian inflation seemed to help. Everything turned back around on Thursday with 0.4% retail sales and jobless claims falling back somewhat. S&P 500 closed Friday up 23.0% YTD. All is well. For now.
Friday, September 27, 2024
We may well change this website to Fwdstocks instead of Fwdbonds as expected returns are changing after Powell’s Jackson Hole “the time has come” speech, especially for money market funds (3.5% next year, really). These stock returns have been about 20% for five years now (okay, minus 2022 Fed liftoff and Ukraine War year), which is almost what the stock market bubble looked like over twenty years ago during the dot.com boom. The 10-yr Treasury yield closed Friday at 3.75%, moving up and down modestly in the right direction of the news at least: down with lower consumer confidence on Tuesday, up with stronger economy, fewer Fed cuts, jobless claims of 218K Thursday, a long way from 250K recession-signal at the end of July, and falling back on Friday with core PCE inflation of 0.1%, and surprisingly applauded year-year headline PCE inflation of 2.2% versus 2.5% last month.
Friday, September 20, 2024
Stocks closed up 19.6% YTD, after increasing 24.2% in 2023. We keep waiting for stocks to forget why they wanted a 50 bps cut. Fed Governor Waller said Friday he voted for 50 bps because of low inflation not because of weakness in the labor market or recession worries. He expects PCE inflation will be a good number on September 27 after CPI/PPI inputs. Powell said in his press conference statement that 2.7% core PCE inflation year-year is expected. Does not look all that low, but Waller explained the last four months of monthly changes have been low, and almost too low if you take away housing inflation. There is the annual GDP benchmark revision coming Thursday which could change the pattern of quarterly growth and monthly PCE inflation as well. Stay tuned. Fed funds futures see the Fed funds rate at 4% by February which includes the next three Fed meetings. 25, 25, 50 anyone?
Friday, September 13, 2024
Turns out you didn’t need to know why stocks fell last week, the seasonal September selling notwithstanding because stocks rallied back. Almost seems like the market wants a 50 bps rate cut whether the result of hard-landing economic data, like last Friday’s payroll jobs number was not, or whether it is 50 bps for risk management, just for the heckuva it, bank regulator reasons. The rally started on Wednesday after 0.3% core CPI where 0.2% was expected, but AI said the higher inflation story did not matter. A gossipy newspaper story Thursday that a 50 bps rate cut was still possible seemed to help equities. The adjusted yield on October Fed funds futures on Friday was 5.14% which means it is a coin toss on whether they go 50 or 25 bps: the 25 bps bets will win 11 bps, and the 50 bps bets will win 14 bps. 10-yr yields closed 3.66%, waiting for Fed rates forecast for 2024-2025.
Friday, September 6, 2024
Seasonal September selling started Tuesday with a vengeance after the holiday with a sharp 2.1% loss for the day. Are the seasonal pressures every September that compelling? Apparently, with major September declines you can take to the bank: -4.9% 2023, -9.3% 2022, -4.8% 2021, -3.9% 2020. For 2024 another winner, down 4.2% as of Friday. We could not see any other reason for selling after the jobs report unless it was the Fed officials saying multiple rate cuts are needed even though we are not in a recession. Maybe they say we are not in a recession, whistling in the dark, too many times for the market to believe them. The bond market ended Friday at 3.71% down 20 bps from 3.91% last Friday at the end of August. Same story, unless the Fed drops their funds rate to 2.5%, there probably is not much value here. And our money market fund savings say the Fed should not do it. Don’t.
Friday, August 30, 2024
Sleepy day holiday-weekend Friday stock market trading until the billions of (MOC) market-on-close buy orders executed/became-known at 3:50pm ET. The S&P 500 rose 1.0% on Friday to 5,648.40, the second highest close this year, and now up 18.4% year-to-date. Equity returns this year are taking the sting out of the Fed cutting rates 25 bps to 5.25% on September 18. When Powell changed directions on policy at Jackson Hole last Friday, he presumably knew core PCE inflation close-enough after PPI/CPI to stick his neck out if that is the word. July core PCE was 0.2% or 0.161% after 0.163% in June and 0.102% in May. Monetary policy has shifted to being more concerned about employment, so a rate cut is necessary with the unemployment rate rising 0.9 percentage point from the cycle low to 4.3% in July. 10-yr yields are having trouble falling much more below the 5.5% Fed funds rate: unless there is a recession which would be shown by declining payroll jobs on September 6.
Friday, August 23, 2024
At 10am ET Friday, the S&P 500 was up over 0.6% on the day at 5,706 before Powell’s remarks, and while the financial world was shocked to hear rate cuts in his speech, it took a lot of back and forth before stocks closed 1.1% higher. Bond yields fell 5 bps to 3.80% on Friday; a level where investors probably do not know what to do next, if the Fed forecasts are only 3% for the Fed funds rate at the end of 2026. If there’s a recession, if nonfarm payroll jobs actually decline, then Fed rates tumble faster or even lower than 3% as Powell is certainly a nervous nellie when it comes to Americans losing or not having a job (that’s why inflation got started in the first place, the Fed not lifting interest rates until long after recession end in April 2020.) The market has no complaints about Powell’s rate cut comments, an abrupt shift, with some grumbling he still saw balanced risks at the July 31 meeting.
Friday, August 16, 2024
A further recovery in stocks: recession hard-landing fears brought stocks down as much as 9.7% from the record highs in mid-July, and the market’s recession-fears were moved to the back burner after resilient growth with retail sales up 1.0% in July and another decline in weekly jobless claims. This left stocks at the close Friday down 2.0% from all-time highs or up 16.4% in 2024 year-to-date. For bonds, the biggest move of the week was the stronger 1.0% retail sales in July and drop in weekly jobless claims to 227K reported on Thursday which took away recession worries, and the need for bigger/more Fed rate cuts. Tuesday and Wednesday saw lower bond yields on the better inflation data, including the bigger move on PPI than on CPI for some reason. 10-yr yields closed Friday 3.89% versus 3.95% the week before.
Friday, August 9, 2024
Major meltdown for stocks with the low at Monday’s 930am ET open. After falling on Friday from recession fears sparked by the weak jobs report, S&P futures fell 4.8% at the worst point on Monday. For the what-happened record, the Nikkei fell 12.4% on Monday. Stocks were lower in the Mideast on fears of Iran attacking Israel. Buffet cut his Apple stock holding in half, announced over the weekend. S&P stock futures bottomed out an hour before cash markets opened at 930am ET but other news hit during Monday. Schwab and Fidelity reported outages at the volatile opening. Nvidia had a chips production problem, and in the afternoon, Google lost its antitrust case. Recession is still bad news for stocks so there was a rally when unemployment claims fell back some. By the end of the week, stocks had retraced about a third of the drop. 10-yr yields closed 3.95% versus 3.79% last week.
Friday, August 2, 2024
Unfortunately, we looked at our 401K at the market top on July 16, and then today: down 6.5% is a big number and a big deal. Not sure it is a big enough shock to qualify for an “external” one that can come from out of nowhere and start a recession. But the dealers or at least those speculating and hedging in Fed funds futures markets have gone crazy this week. On Friday, all but 5 bps of a 50 bps rate cut at the September meeting is discounted. At the next three meetings all but 5 bps of 125 bps of rate cuts are discounted over the next three Fed meetings: September, November, December. Let’s see that would put Fed rates at 4.25% at year-end, exactly where the Fed Governors and Presidents in their wisdom first pegged “neutral” rates for the economy, which would not speed or retard economic growth, when they first made those controversial interest rate forecasts way back in January 2012.
Friday, July 26, 2024
The number is 4.9%, just short of 5.0 before technical buying came in. A 5% drop in anyone’s investment portfolio is quite something assuming you get the alerts on your phone to sell, sell, sell like we did. Good time to come with an IPO if you are a prominent hedge fund manager. We put up some markers on the stock chart because we are economists, GDP, PCE inflation, but other things were going on. Another dark day this week for Nasdaq just like the week before, this time a spectacular 3.6% Nasdaq drop Wednesday; there were Tesla and Google earnings Tuesday afternoon and then there was LVMH earnings that has some investors questioning global consumer demand for the luxury goods we could never afford. Don’t forget bonds. 4.20% 10-yr yield close Friday versus 4.24% (yawn) last week. Treasury announces new cash needs Monday, July 29 at 3pm: Unless you are in politics, the National Debt is just a number on a piece of paper as far as bond traders are thinking.
Friday, July 19, 2024
Stocks were lower this week so everyone is unhappy; quite an abrupt turnaround from record highs for the S&P 500 on Tuesday – the loss from high to low this week is 3.0%. News overnight on Wednesday started stocks on a downward path starting with UK inflation of all things that may have taken a Bank of England rate cut off the table. The bigger Wednesday news was a report the US was considering putting more restrictions on companies that provide advanced chip technology to China. Trump weighed in as well saying Taiwan needed to pay for its defense. The S&P 500 fell 1.4% and tech dragged down Nasdaq by 2.8%, the worst loss in over a year. Dow industrials climbed however, adding to the confusion, with big gains by United Health and Johnson & Johnson. 10-yr yields were 4.24% Friday up from 4.19% the week before, CrowdStrike tech outage was overnight Thursday.
Friday, July 12, 2024
Stocks were higher this week so everyone is happy, although the daily ranges were quite large on the final three days. The S&P 500 inched upward towards the 5,600 level, breaking above that perhaps on the second day of Powell’s testimonyWednesday, repeating the theme of balanced risks out there, and they were not just purely fighting inflation with higher rates anymore, although of course they are: higher rates the only way they know to return it to 2.0%. Good inflation data Thursday with immediate selling following the move to new highs; this keeps happening, the recent experience after 0.1% core PCE inflation at the end of June, but it goes back further. The stock rally on Friday was not easily explainable besides saying equities recovered lost ground from Thursday’s “tech-related sell-off,” and even made a new all-time high briefly. CPI/PPI say 0.0% core PCE inflation on July 26. Stay tuned.
Friday, July 5, 2024
Bond yields ended the week at 4.29%. The presidential election news may have moved rates up early in the week, but the worsening economic outlook brought yields back down. It is early to worry about the Federal debt and the Fed did cut QT recently bringing down the Treasury’s annual borrowing need by $420 billion. A lot of the bump in bond yields was portfolio rebalancing late on June 28 at the end of the quarter. For the darkening economic outlook, ISM services fell sharply (again) on Wednesday, and the jobs report on Friday eventually was seen as a negative for growth perhaps with the tick up in the unemployment rate. Through it all the stock market kept moving higher, ending Friday up 16.7% year-to-date. At least Powell has stopped talking down the stock market, where easy financial market conditions were thought to hurt the inflation fight. May 2024 PCE inflation is only 2.6% year-on-year.
Friday, June 14, 2024
Bond yields got wacked this week despite some momentary yield backup on Wednesday afternoon when the Fed said just one rate cut this year (which more or less means December) instead of the three rate cuts they forecast at the March meeting. Another week where the rising national debt is sustainable with a couple of solid Treasury bond auctions. The three major news events that brought yields down were the 10-yr auction on Tuesday, 0.2% core CPI on Wednesday (which after PPI on Wednesday means a May 0.1% core PCE number released Friday, June 28), and on Thursday the PPI inflation report and 13K increase in weekly jobless claims to 242K. Stocks were less volatile than bonds and just kept making new all-time highs. Stocks rallied Tuesday with the 7.3% jump in Apple. Wednesday was the 0.2% core CPI rally, giving some back on the Fed seeing just one 2024 rate cut.
Friday, June 7, 2024
The scramble was on to put a reason on why the markets did what they did on Friday after the surprise monthly jobs report. 272K payroll jobs, versus 175K expected, and hot 0.4% wages seemed to lift bond yields Friday by 15 bps to 4.44%. It would be nice if bonds stopped trading on average hourly earnings (wages) as if it was “inflation,” but markets have done this for many years. Stocks fell and then recovered, more buyers than sellers perhaps. Market action earlier in the week explained by August Fed funds futures was a drop in yields on the surprise decline in ISM manufacturing on Monday: at one point futures discounted 21 bps of a 25 bps rate cut at the September FOMC meeting. But the Friday jobs report sank the ship on that sure-thing idea, and now the chance of a Fed rate cut by the September meeting is a coin toss. S&P 500 closes up 12.1% YTD on Friday.
Friday, May 31, 2024
Equity markets could not stop talking about higher bond yields (4.64% peak on Wednesday) as a reason why stocks were falling even as bond yields fell lower to close Friday at 4.50%. The poor 5-yr Treasury auction results on Tuesday pushed yields higher, a rebound in consumer confidence also helped the same day, but less so the economic data. Real GDP was revised down a few tenths to 1.3% all due to the consumer on Thursday, and stocks did not react much, but bond yields fell. Stocks did not like the implications of tech earnings from Salesforce on Thursday (stock down 19.7%) and Dell on Friday (stock down 17.9%), but stocks finally turned back up and sharply, near Friday’s close. Core PCE was 0.2% as advertised on Friday, barely at 0.249%, but real consumption actually fell in April. Weak economy, buy stocks, buy bonds.
Friday, May 24, 2024
Bonds 4.40-4.50 all week, the excitement, if that’s what it was, was a yield rally on Thursday S&P services PMI 54.8 vs 51.3; data are not stable, and we learn May 31 whether consumers spent on services in April. 10-yr 4.47% early close on Friday at 2pm ET for holiday weekend. Stocks rallied to new highs Thursday after Nvidia earnings, dragged lower by Boeing stock troubles. Waller on Tuesday really got into the weeds with the April core PCE inflation report on May 31. After PPI/CPI he said core PCE inflation might be 0.23 to 0.26 percent, so rounded it could be 0.2 or 0.3%. Helpful. Stay tuned.
Friday, May 17, 2024
Rational markets have come down to this: Core CPI monthly percent changes Jan 0.392, Feb 0.358, Mar 3.59, Apr 0.292. Barely a tenth, 0.67 lower, but okay, it made all the difference in literally the world, enough for us to check our 401K online on Wednesday (who among us would not) after CPI and the S&P 500 1.2% advance to a record high. That was about it for the week. Jobless claims fell back 10K to 222K on Thursday disappointing those looking for recession; claims did not seem to hurt stocks as much as it helped a week ago. Finally, on Friday, the Dow industrials closed above 40,000 for the first time, and is up 6.1% YTD, while the S&P 500 closed up 11.2% YTD. Only two more inflation reports before the Fed’s June 12 decision date. April core CPI that is expected to be 0.2% on Friday, May 31, and May CPI the same morning of the Fed decision later at 2pm ET.
May 10, 2024
Bond yields moved sideways this week closing at 4.50% versus 4.52% the week before. Lots of Fedspeak, little economic data, and the quarterly Treasury refunding auctions, all with minor intraday moves hard to explain although sometimes moving with European yields. The only day that was crystal clear was Thursday, when the 22K rise in jobless claims to 231K brought down yields and yields fell further after the 30-year auction results at 1pm. So much for the Federal government spending crisis stopping investors from buying US debt. Michigan consumer sentiment fell on Friday, but they saw more inflation ahead (how would they know?); Treasury yields had already risen a lot before the 10am ET release. We were planning to look at our 401K holdings after the close on Friday, but stocks did not like the Michigan sentiment report. CPI is May 15: core 0.4% (0.359) in March.
May 3, 2024
Another volatile, confusing week. October Fed funds futures yields dived twice on Friday, first on 175K jobs and 0.2% average hourly earnings (wages), recovered somewhat, then fell back to lows on ISM services at 10am ET saying we are in a recession, before noticing the prices component went up which means inflation. There may have been an errant 10am headline from a Fed official talking tough about the need to keep rates high due to inflation or downplaying the soft 175K jobs report saying it was the old normal. Things are fine. Market is run by headlines and daytraders lately. 10-year yields closed lower this week at 4.51%. The Treasury refunding announcement Wednesday 830am ET on no increase in regular auction sizes for a while helped, and later at 2pm ET same day, the Fed cutting QT from $720 billion a year to just $300 billion. Half a trillion less new cash to raise in markets.
April 26, 2024
The market story this week is based on economic reports as told through the eyes of Fed funds futures. Odds of Fed rate cuts up with S&P manufacturing PMI dipping below 50 on Tuesday. Growth was weaker with first look at Q1 2024 GDP just 1.6%, but market looked instead at core PCE, like for the quarter, even though monthly data already out for January/February. Headline looked bad: 3.7% Q1 up from 2.0% in Q4. Friday consumer spending was stronger and 0.3% core PCE met expectations. Stocks bounce around on earnings reports. Meta earnings Wednesday evening dropped the stock 10.6% Thursday. Google and Microsoft Thursday evening better than expected: Google closing up 10.2% on Friday. Bonds closed 4.67%. If you don’t like the national debt, Treasury announces its quarterly new cash needs at 3pm ET Monday, April 29 ahead of the May refunding.
April 19, 2024
All downhill for stocks and bond prices this week, with the yield rally held back by weak stocks. Retail sales were stronger than expected at 0.7% on Monday, bond yields jumped as much as 14 bps to 4.67%, and higher yields brought the stock market rally on retail sales back down. Fears about a retaliation by Israel after the Iran attack over the weekend also sent stocks lower. Powell comments on Tuesday has the market jumping to conclusion that there will be no rate cuts this year even if Fed funds futures have one cut priced in by September. Core CPI was just barely 0.4% the last two months but markets fear rates higher for longer with some nervousness about rate hikes as the economy is not slowing. Surprisingly modest bond response to Powell saying Tuesday that inflation was not giving policymakers the confidence they needed to cut rates, although 10-yr yields went to the 4.70% high for week. Stocks down 5.9% from highs on Friday at the worst point, closing up 4.1% YTD.
April 12, 2024
There was an immediate sell-off in stocks on the 0.4% core CPI report on Wednesday, no thinking about it, and a much different reaction than an identical 0.4% core CPI report a month ago on March 12. There had been more Fedspeak on the need to see more progress on inflation before cutting rates ahead of Wednesday’s CPI report. Stocks fell further on Friday on fears of an imminent attack on Israel by Iran, and perhaps some selling pressure to raise cash for the April 15 tax date on Monday. Weakness in stocks brought market yields back down, including Fed funds futures. Anything is possible of course, but it seems unlikely that core CPI monthly changes will continue to run 0.4% each month, and because core CPI was barely 0.4%, it is easier to forecast better 0.3% core PCE inflation data on April 26. Stocks fell as far as 3.0% Friday from the March 28 record high. 10-yrs close 4.53%.
April 5, 2024
A wild day for stocks on Thursday, trading like cocoa commodity futures. On nothing. The most offending headlines from Minneapolis Fed President Kashari Thursday: “If we continue to see inflation moving sideways, it would make me question whether we needed to do those rate cuts at all.” The S&P 500 was challenging record highs up at 5,256.59 and collapsed 2.1% to close Thursday at 5,147.21. We should have known, stocks rallied on nothing to get to those highs Thursday morning: somehow moving up on the big deal of weekly jobless claims rising to 221K “the highest level since January” where 214K had been expected by the market. A new high close this year on Friday for 10-yr yields, breaking the February 22 4.35% high. 4.35% was actually broken on Tuesday with London back from the Easter Monday holiday. 303K jobs Friday, stocks up 1.1%, 10-yr yield +9 bps to 4.41%.
Friday, March 29, 2024
Bond market was in a 10 bps range, starting the week at 4.20% and closing Friday at 4.20%. Powell spoke Friday: one of the rare times stocks did not fall. Stocks fell the day he was appointed. A skilled interviewer for once tried to get something out of the Fed Chair. Powell is a lawyer who rarely speaks out of turn. Powell again said they would cut rates if the economy weakened, the labor market seen as the indicator he is thinking of, job losses from the most dangerous man in America. A falling stock market has figured prominently in all the Fed rate cut cycles since 2000; it is a leading economic indicator. Greenspan said the 2001 cuts were due to sales and production, unemployment claims were mentioned. None of the other rate cuts were from job losses per se. There was a bank funding crisis from subprime debt problems in 2007. The 2019 cuts (only three from 2.5%, fine-tuning at its worst) originated with Powell wanting to be patient after stocks crashed at the end of 2018. The 2020 cuts were an emergency response to the pandemic, made between meetings. The 2024 cuts were
Friday, March 22, 2024
Stocks liked Fed meeting day with the S&P 500 down 0.1% before the 2pm ET release of the press statement and forecasts. Stocks tried to rally because the Fed kept three rate cuts on the table this year, but did not get too far. But the S&P 500 seemed to gain conviction early during Powell’s Q&A testimony from 230 to 330pm ET. Powell still thinks inflation is moving down, and even said core PCE inflation released next Friday would be 0.3% not the 0.4% posted for core CPI in February. Core CPI at 0.358% was barely 0.4% anyway. Bond yields swing lower, then higher, then unchanged on the Fed news. As far as QT, Powell did say they would “slow the [$60 billion monthly] pace of runoff fairly soon.” QT is $720 billion per year which adds, with the Federal budget deficit, to the national debt, so cutting back should drop bond yields? Friday S&P 500 closed 9.7% YTD, 10-yr yield 4.20%.
Friday, March 15, 2024
It is not clear what ailed the stock market at week’s end, but it is follow the bouncing ball with Nvidia apparently and there is a Nvidia developers conference next week before the Fed meeting. The daily changes in Nvidia and the S&P 500 matched perfectly each day this week. CEO Jensen Huang gives a keynote speech Monday, March 18 at 4-6pm ET. The daily changes up/down in Nvidia (5.0% weight in the S&P 500) and the S&P 500 matched perfectly each day this week. What can you say about a stock market that makes a record high close after Tuesday’s strong CPI report that could delay Fed rate cuts. At least bond yields went higher on the inflation report, and Thursday’s PPI report as well although there was also a story about the BOJ going to exit its negative rates policy on Tuesday, March 19. The insane, surprise move to negative rates in January 2016 brought Treasury yields down.
Friday, March 8, 2024
Another week where a tech rally pushed the S&P 500 to a record high. Only it ended badly on Friday, where a record high was followed by a lower close mirroring “the market leader” Nvidia which increased 5.1% Friday morning to a record $974.00 before crashing down almost 100 dollars to $875.28 by the close of the week. We are waiting for it to cross $1,000 before we buy it. The S&P 500 closed Friday +7.4% YTD. Treasury bond yields closed down about 10 bps this week at 4.08%. The low yield for the week of 4.04% after the jobs report did not stick. The focus is on core CPI on Tuesday, March 12, where the surprise 0.4% core CPI a month ago, pushed yields back above 4.30%. There’s the market reaction to what the consensus forecast was and there is reality. CPI is higher relative to PCE inflation as shelter has a huge 45% weight in the makeup of core CPI.
Friday, March 1, 2024
Another week where a tech rally pushed the S&P 500 to a record high. The S&P 500 closed Friday +7.7% YTD after a 24.2% increase in 2023. For bonds, Thursday’s sell-off to the week’s 4.34% high for 10-yr yields on core PCE inflation of 0.4% lasted a few seconds before buying came in, bringing yields down below 4.25% by 930am ET. Continuing unemployment claims, released at 830am ET the same time as PCE inflation, made a new high since last November, but we do not think bonds are thinking recession is coming to speed up the Fed rate cuts. The reaction on Friday at 10am ET was just as strong as the response to the inflation data Thursday, after ISM manufacturing purchasing managers fell to 47.8 from 49.1, and Michigan consumer sentiment fell to 76.9 from 79.0, a stronger rally than one would think was warranted from this third-tier economic data. Bonds closed at 4.18%.
Friday, February 23, 2024
A light week for economic news but who cares. Nvidia earnings Wednesday night sent the S&P 500 to a new record on Thursday up 2.1%. There are not a lot of 2% rally days. Check your 401K investment results before Congress taxes them to save Social Security. Not a lot to say about the 10 bps range for 10-yr yields this week, closing Friday at 4.25%. 4.30% seemed to be important, breaking above after the 20-yr Treasury auction results at 1pm Wednesday, while moving up earlier in the 10 o’clock hour. Little reaction to Fed meeting minutes. The original press statement said it all three weeks ago: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.” Yields broke back below 4.30% Friday; technical, but ECB’s Centeno said they must be open for a March 7 meeting rate cut even if not likely. PCE inflation Thursday, February 29 is next: 0.4% core PCE discounted?
Friday, February 16, 2024
Big inflation outbreak from the economic data this week, starting with 0.4% core CPI on Tuesday, sent bond yields up and the stock market down. The S&P 500 did make a record close on Thursday, but gave it up Friday afternoon. PPI was higher and led to more forecasts of a 0.4% core PCE inflation print in a couple of weeks. Bond yields jumped 13 bps to 4.32% Tuesday on the CPI surprise. 10-yr yields retraced part of the move, and the low yield was 4.19% after retail sales fell 0.8% on Thursday to start the year off right, and bonds thought that was important news briefly. Another hot inflation report on Friday from PPI brought yields back to the 4.34% highs for the week, that move faded as well and 10-yr yields closed the week at 4.28%. Same forecast though. If the Fed cuts rates to 3.0% at the end of 2026, 10-yr yields are still likely to be 4-4.25 percent.
Friday, February 9, 2024
Bond yields moved up sharply on Monday, Fed voices on no need to hurry are there, “dealers set up for the quarterly refunding auctions on Mondays,” but the yield high was made on the increase in ISM services at 10am ET. Services are not all that strong, but the number beat market expectations. On Friday, yields fell to the 4.13% low when the core CPI seasonal factors did not change much. But by the end of the session, yields were threatening to break above 4.20% which is the latest line in the sand. Stocks apparently thought CPI seasonal factors might be big news and it looks like it held off a move in the S&P 500 on Thursday, but the green light came out, and the S&P 500 did indeed make a new record high close Friday of 5,026.61 up 5.4% YTD. Focus is on CPI due out Tuesday, February 13 but whatever the number, core PCE inflation has been much lower recently, i.e. the Fed’s target.
Friday, February 2, 2024
Another record high for stocks during the day on Friday on the strong jobs report. Stocks traded up into the employment report after Meta earnings Thursday night (Meta closed up 20.3% Friday). Stocks fell back after the strong jobs report and 0.6% wages, but a rally in tech brought the stock market back. 10-year Treasury yields jumped 14 bps on Friday to close at 4.02%. Stocks also ended higher despite April Fed funds futures odds of a rate cut on March 20 falling to just 26%. It was Powell’s “March rate cut unlikely” comment on Wednesday that extended the stock sell-off (Google fell 7.4% Wednesday after earnings Tuesday night). The Wednesday stock sell-off of 1.6% for the S&P 500 reversed on Thursday. New York Community Bancorp (NYCB) brought yields down briefly on Wednesday and Thursday morning as it reminded traders of the March 2023 bank crisis.
Friday, January 26, 2024
Another record high for stocks during the day on Friday on strong consumer spending and okay 0.2% (0.17) core PCE inflation. Stocks wavering a little at all-time highs after losing its target goal which was to recover fully from the 2022 27.5% drop for the S&P 500. It took several weeks of tests of the 4,800 level recently, so 4,900 will likely see the same back and forth. Maybe waiting for the Fed officials to take the scissors out to the meeting press statement on January 31 at 2pm ET, dropping the words, “In determining the extent of any additional policy firming,” to signal rate cuts are the only policy option now. 10-yr yields closed little changed at 4.14% this week, bouncing between 4.10-4.20. Waiting for supply news from US Treasury: Monday, January 29 3pm ET quarterly borrowing requirement (Q1 was $816 bln, incl. $172 bln QT). Quarterly refunding terms 830am Wed, Jan 31.
Friday, January 19, 2024
The S&P 500 on Friday broke the record high from January 2022 is the news, coming back from a large 27.5% peak-trough loss, as economists would call it, of 27.5%. Recession-magnitude minus the recession. On Friday, Michigan consumer sentiment jumped, and there was an options expiration. Next time stocks fall 27.5%, buy the market. Given Friday’s close, it is hard to look back like anything else mattered. Fed Governor Waller likes to move the market as his mentor former St. Louis Fed President Bullard used to, the “no reason to move as quickly, cut as rapidly as in past” headline sending bond yields up from 4% on Tuesday at the start of the holiday-shortened week. Bonds hit the 4.20% yield high for the week on Friday after Michigan sentiment jumped at 10am ET, but came back down to close on Friday at 4.13%. Futures odds are still 50/50 on a March meeting Fed rate cut.
Friday, January 12, 2014
Simple week to describe for bonds with the 4.07% yield high after a worse CPI inflation print on Thursday, and falling back down on a -0.1% PPI inflation number on Friday, closing the week at 3.94% versus 4.05% a week ago. Bonds waiting for Fed to cut rates which is still 50/50 for the March meeting. More actually with April Fed funds futures discounting 21 bps of a 25 bps rate cut. Stocks are wavering as they get close to the all-time highs: S&P 500 high was 4,818.62 on January 4, 2022, and the high close 4,796.56 on January 3, 2022. Stocks traded through the record closing high both on Thursday and on Friday, but could not hold it. It took a while for the stock market sell-off on CPI Thursday to get going, falling 0.9% from Wednesday’s close at one point, but rallying back. Focus ahead is on whether stocks can break those January 2022 highs: it was one of history’s worst downturns that year: 27.5%.
Friday, January 5, 2024
It is not often that anecdotal info from business surveys move the market more than real data like the employment situation report, but that is what happened on Friday. Stronger 216K payroll jobs at 830am ET brought the yield on August 2024 Fed funds futures up, taking some 2024 expected rate cuts off the table, then at 10am ET, the ISM services index said business conditions were weaker, especially the employment index where there were actually a quite positive 164K service jobs created in December in the BLS report. Anyway, all water under the bridge, and at the close of the day, Fed funds futures yields were little changed Friday. Meanwhile, the stock market kept falling this week before turning positive somehow on Friday. It all started with Barclays downgrading Apple before the NY open on Monday. On Friday the S&P 500 fell as much as 2.3% from the December 28 high.
Friday, December 29, 2023
Year end with S&P 500 up 24.2% versus 19.4% loss in 2022. 10-year yield 3.88% at year-end, waiting for those Fed rate cuts that are surely just around the corner. There was a spectacular downward revision to core PCE inflation that was hard to explain on Friday, December 22. Before this report,there was just one tame 0.1% monthly increase this year in August. Now there are 0.1% monthy changes in July, August, October, November. Inflation news has some Wall Street dealers looking for a first rate cut from 5.5% at the March 2024 meeting.
Friday, December 15, 2023
The Treasury rally continued with yields another 10 bps lower to 3.92% on Thursday as Europe reacted to the Fed meeting. The ECB met Thursday as well and like it or not some dealers think the first ECB rate cut could be in April 2024. Central bankers might be feeling rushed by markets, and Friday around 830am ET, New York Fed President Williams in an interview said they were not really talking about rate cuts right now. That’s fine, but their forecasts have a 4.75% Fed funds rate at the end of 2024 and 3.75% at the end of 2025, so a 10-year yield of 4% can ride it out for now. A recession isn’t necessary for rate cuts, and that is good because the labor market data including continuing unemployment claims are giving inconsistent readings on job losses; recession not needed but more progress, more 0.2% core PCE numbers for several months are what Powell is looking for.
Friday, December 8, 2023
The employment situation report was stronger, more payroll jobs, 0.2 drop in the unemployment rate, higher 0.4% average hourly earnings (wages) this month, and stocks went down for all of a minute. Stocks liked the drop in long run inflation expectations in the Michigan Survey at 10am ET, even if much of the initial rally was retraced within an hour. At the end of the day, a new S&P 500 2024 closing high, +19.9% YTD, on Friday, and a new intraday high for the year as well. 10-yr Treasury yields made a new low from 5% at the end of October. The spread is widening from the 5.5% Fed funds rate in anticipation of all the Fed rate cuts expected next year. The yield rally on more Treasury supply, announced at the August refunding, is over apparently. Treasury now estimates it will raise $3.1 billion new cash this year, up from $1.5 trillion in 2022. 10-yr yields close 4.23% Friday after 199K jobs.
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...
