The Closer – Summary of Economic Projections, Inflation Forecast Confidence, EIA – 9/20/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a review of the swings in the Fed’s Summary of Economic Projections updated today with the latest FOMC decision (page 1). We also provide commentary on the Fed’s newest policy statement, Powell’s presser, and the terminal rate (page 2). We also review the market’s reaction to today’s FOMC news (page 3) before closing with a recap of the latest EIA data (page 4). Below is a sample chart from tonight’s report:
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Daily Sector Snapshot — 9/20/23
Another Powell Fed Day Sees Stocks Tank Into the Close
In Monday’s Chart of the Day, we looked at how the stock market typically performs on Fed Days. Below is one of the charts highlighted showing the average intraday path that the S&P 500 has taken on Fed Days over the past year (8 Fed Days). As you can see, investors really seem to dislike what Chair Powell has to say, as the market has trended straight down in the final hour of trading once his press conferences come to an end.
Today’s action was no different. It’s actually pretty incredible how closely today’s action tracked the normal Powell Fed-Day pattern. Take a look at the chart below. The red line shows the S&P 500’s path today, while the blue line shows the average path that the S&P took over the prior eight Fed Days. Maybe Powell can change things up next time (unless this is the action he wants to see).
Chart of the Day: Is It the Best or Worst Time of the Year?
Fixed Income Weekly — 9/20/23
Searching for ways to better understand the fixed income space or looking for actionable ideas in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit each week. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed-income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation, and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1-year return profiles for a cross-section of the fixed income world.
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Bespoke’s Morning Lineup – 9/20/23 – Place Your Bets
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“There is one kind of prison where the man is behind bars, and everything that he desires is outside; and there is another kind where the things are behind the bars, and the man is outside.” ― Upton Sinclair, The Jungle
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It’s Fed Day, and while these are always eventful days for the markets, there is basically zero chance that the Federal Reserve makes any change to rates this afternoon, so the real focus will be on the Summary of Economic Projections (SEP) and Powell’s press conference at 2:30. Outside of the Fed announcement, there is no economic data on the calendar, but we will get earnings reports from FedEx (FDX) and KB Home (KBH) after the close. Heading into the opening bell, equity futures are higher, while yields, the dollar, and crude are all modestly lower.
Investors are on tenterhooks this morning waiting for the latest economic projections and statement on interest rates from the Federal Reserve. With control over the cost of credit and supply of money in the economy (and a nice marble building), the Federal Reserve is in a powerful position. However, even the most powerful people can’t predict the future, and the ability of the men and women who make up the committee to predict where the economy is going probably falls somewhere between Jimmy the Greek’s record on Sunday NFL games in the early 1980s and Pete Rose’s betting percentage on the 1987 Reds. Despite that reality, when the statement and economic projections hit the tape in a few hours, billions in capital will be shifted based on their contents, and traders will make and lose fortunes based on how they were positioned heading into the announcement. Play ball!
It was just over two months ago that headline CPI for June dropped to 3.0% and investors thought some real progress had been made on inflation. With that progress, the view has increasingly been that the Fed would move to the sidelines taking a wait and see approach towards interest rate policy. Unfortunately, for fixed income investors, though, interest rates have done nothing but go up. Since 7/13, the day after the June CPI report, yields have been higher across the curve to levels not seen in at least 15 years. At the very short end of the curve, the 3-year yield is up just 5 basis points (bps), but two-year yields are up 34 bps, and 10-year yields have shot up 50 bps.
In terms of how those higher yields impact price, the iShares 20+ Year Treasury ETF (TLT) is down 8% and back down near its lowest levels since 2011. Talk about a lost decade!
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The Closer – Savings Cushion, Loan Repayments, Canada CPI, Housing, Indeed – 9/19/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at household cash balances and the surge in student loan repayments (page 1). We then review Canadian inflation (page 2) and US residential construction data (pages 3 and 4). After a recap of the latest 20 year bond reopening (page 5), we run through the latest job postings data from Indeed (pages 6-8).
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Daily Sector Snapshot — 9/19/23
Chart of the Day – Is the VIX Too High?
Dividends (DVY) Get Payback on Growth (VUG)
Checking in on our Trend Analyzer tool, the clear biggest losers over the past week have been growth stocks. As shown in the snapshot below, almost all of the growth ETFs regardless of market cap have fallen over 1% in the past week. Although these are the same groups that have posted some of the biggest gains on a year to date basis, that recent drop has brought them back below their 50-DMAs with some like the Russell Mid-Cap Growth ETF (IWP) and small-cap Russell 2,000 Growth ETF (IWO) falling into oversold territory.
On the other end of the spectrum, there are only a small handful of ETFs in this screen that have risen over the past five days. The strongest of those has been the Select Dividend ETF (DVY) with a nearly 1% gain in the past week. That has cut into modest year to date declines (few other ETFs in this screen are also down year to date, but those are also dividend or low volatility focuses). In other words, price action over the past week has to some degree been a rotation of year to date performance.
In the charts below, we show the ratio of the Dividend ETF (DVY) versus the Growth ETF (VUG). The ratio has been in a steep downtrend throughout 2023 meaning growth has trumped dividend payers. However, this month’s reversal of that outperformance has resulted in the ratio to break out of that downtrend. Zooming out, that rebound in the ratio has also coincided with an uptrend line off of late 2020 and 2021 lows. Time will tell how lasting this reversal in relative performance will be, but from a purely technical standpoint, it has come at a logical point.
