It’s been just over a month since the U.S. presidential election, and financial markets continue to be influenced by anticipation for the incoming administration in Washington D.C.
Turning the Page
The Election and Interest Rates
In a typical week, a .25 point interest rate cut by the Federal Reserve would likely be the top economic story in the United States. This was not a typical week.
Jobs > Inflation
In what is commonly known as their dual mandate, the Federal Reserve is charged by Congress to effectively promote both maximum employment and stable prices in the U.S. economy.
Steady As She Goes
Next month will mark the one-year anniversary of the Federal Reserve’s last interest rate increase. For the last year, there has been much handwringing in the media about a pending recession.
Putting the ‘Income’ Back in Fixed Income
With the Federal Reserve taking a ‘higher-for-longer’ approach to interest rates, bond yields are higher than what the market expected at the start of the year.
The Last Mile
Over the last two months, our investment team has been privileged to meet with many of our clients and professional partners as we’ve delivered our annual Investment Outlook presentation.
What's Next for Interest Rates?
One irony from the bond market in 2023 was that the year started with near unanimous calls for a recession, finished with an over 20% return for the S&P500 and consensus for a soft landing, yet the yield on the benchmark 10-year U.S. Treasury ended the year right where it started at 3.88%.
More Gas, Same Brakes
This past week’s plethora of economic and market-moving data, especially regarding interest rates, has served to highlight the sometimes-conflicting forces at work in the U.S. economy. While the Federal Reserve maintained their interest rate policy at 22-year highs on Wednesday, we also learned the U.S. government’s budget deficit grew to nearly $2 trillion in their most recent fiscal year.
All Rise: What’s Driving Higher Interest Rates?
This week, yields on the benchmark 10-year U.S. Treasury rose to their highest level since 2007. Earlier this spring, market stress linked to the banking sector led safe-haven buyers to the safety of U.S. Treasuries, and the 10-year Treasury hit a year-to-date low of 3.30% in early April.
The Labor Market Holds the Key
The lead story from the stock market this year may well be the outperformance of a narrow and select group of technology companies, however the leading economic story this year may be the surprising resilience of the U.S. economy in the face of the Federal Reserve’s concerted effort to rein in growth via higher interest rates.
March Madness Started Early This Year
One year ago this week, the Federal Reserve raised interest rates for the first time since the pandemic began. After two years of holding rates near zero, this first hike to combat rising inflation only raised the policy rate by a mere 0.25%.
The Return of Income and Insurance
Bonds made headlines last year for all the wrong reasons. Spurred by dramatic interest rate increases from the Federal Reserve, the U.S. bond market posted its worst annual performance in modern history. As a result of last year’s sell-off in bonds, bond yields have reset to higher levels not seen in over a decade.
2023 Investment Outlook Video
Annual presentation from Ferguson Wellman investment team discussing the major themes facing capital markets in 2023 and how they will affect client portfolios.
The Return of Yield
For much of the prior decade, both savers and bond investors alike tolerated low yields and a modest total return. The Federal Reserve couldn’t achieve liftoff from their near-zero interest rate policy for over six years following the Great Financial Crisis. Their efforts to stimulate the U.S. economy with low rates and quantitative easing achieved about the same level of success as an attempt to ignite a pile of damp newspaper. Bonds’ greatest virtue during that decade may have been to provide a reliably unattractive foil for a strong stock market and expanding price-to-earnings multiples.
Can't Catch a Break
The hotter-than-expected August Consumer Price Index (CPI) data released this week was a shock to financial markets, as other recent measures had suggested a moderation of inflationary pressures. While there is clear evidence that energy and gasoline costs have declined since earlier this summer, broad-based increases observed in major categories like food (14% of CPI) and shelter (32% of CPI) reinforce that significant and upward price momentum remains intact.