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“Alexander Hamilton started the U.S. Treasury with nothing, and that was the closest our country has ever been to being even.” – Will Rogers
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures are higher this morning as investors look to regroup following yesterday’s FOMC meeting and Powell’s press conference which pooh-poohed the possibility of a March cut. The S&P 500 finished the day down over 1.5% in what was the worst day in four months. Powell gets much of the blame for the decline, but equities were already firmly in the red leading up to the announcement, and the market was also trading at overbought levels. Powell didn’t help, but what he said wasn’t exactly a major surprise. Just the fact that the chair was openly talking about rate cuts being a matter of when rather than if is a stark difference from the last two years.
The tone right now is positive, but if you think Tuesday was a seminal moment in the earnings season, today promises to be even bigger with Apple (AAPL), Amazon (AMZN), and Meta (META) being just three of the dozens of companies reporting after the close.
On the economic calendar, Jobless Claims, Unit Labor Costs, and Non-Farm Productivity were all just released, and later we’ll get Construction Spending as well as the S&P and ISM Manufacturing PMIs. Non-Farm Productivity came in stronger than expected (3.2% vs 2.5%) while Unit Labor Costs were weaker than forecasts (0.5% vs 1.2%). Jobless claims weren’t particularly good as both initial and continuing claims came in higher than expected and at their highest levels since November. Expectations for the PMIs aren’t particularly positive, and based on the regional Fed Manufacturing reports we got throughout the month, we’ll be lucky to even get an inline reading.
What had been a very strong first month of the year turned into a more modest one as Fed Chair Powell successfully let some of the air out of the market balloon in his press conference yesterday. When the dust settled, the S&P 500 finished January up 1.7% on a total return basis after being up well over 3% heading into yesterday’s session.
On a y/y basis, the S&P 500 is still up over 20% on a total return basis which is nine full percentage points above the long-term historical average of 11.8% ranking the last year in the 69th percentile relative to all one-year periods. While one-year returns have been very strong, two-year returns have been the complete opposite. At 5.3% annualized, the S&P 500’s two-year performance ranks in just the 28th percentile relative to all other two-year periods. Looking further out, both five and ten-year annualized returns have been above the historical norm while 20-year returns are still below their long-term average.
Long-term US Treasuries are a completely different story. Based on returns of the BofA/Merrill 10+ Year US Treasury Index, long-term treasuries were down 1.65%. You may recall that in December treasuries ended a 34-month streak of negative 12-month returns, but January’s weakness moved the one-year returns back below zero. As shown in the chart below, annualized returns over the last one, two, and five years are all negative. On a 10 and 20-year basis, returns are positive, but they are still well below their historical long-term average, and for all periods except the last year, current returns rank in the 3rd percentile or below relative to all other periods. Calling the last decade a dark age for bonds wouldn’t be an understatement.
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