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Value Stocks and Passive Distortions
Today’s Commentary focuses on passive investment strategies and how they are making difficult decisions for value investors. Passive investors tend to “buy the market.” By this, we mean they often focus on the largest passive ETFs. Some may buy the well-known index ETFs and call it a day. Other passive investors shift between stock factors […]
May 10, 2023
Tighter Lending Standards Confirmed by Fed Survey
The Fed’s Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) confirmed a widely expected tightening of bank lending standards in the first quarter. The share of banks with tighter standards on loans to medium and large businesses rose to 46% from 44.8% in the fourth quarter of 2022. Given the regional bank fallout […]
May 9, 2023
Employment Report Spoils Hopes for Rate Cut in July
Friday’s employment report revealed that Nonfarm Payrolls rose 253,000 last month, crushing expectations of a 185,000 increase. Meanwhile, the unemployment rate fell to 3.4%— its lowest since 1969, and average hourly earnings rose 0.5%, their fastest pace in a year. Before Friday’s report, Fed Funds futures priced in a 60% chance of a rate cut […]
May 8, 2023
How Long Until The Fed Cuts Rates?
Yesterday’s Commentary, Is the Fed Done, contemplates whether or not Wednesday’s rate hike was the last for the cycle. If it was, as many seem to think, the next question for investors should be how long until the Fed cuts rates. Yesterday’s Commentary shared a table with market-implied Fed rate cut probabilities. A day after […]
May 5, 2023
Is The Fed Done?
The Fed raised rates by 25 basis points to 5.00-5.25%, hinting at a pause in future hikes. Weaker than expected Q1 GDP (+1.1%) and signs the labor market is finally cooling off argue the Fed may be done. However, higher inflation remains sticky, and the most recent ISM manufacturing survey shows the price paid component […]
May 4, 2023
The Fed and Treasury Will Soon Be At Odds
Treasury bond prices fell sharply on Monday and rallied back strongly on Tuesday as traders nervously await today’s Fed rate decision. It appears bond traders are struggling with the implications of higher interest rates and a rush of Treasury issuance coming once the debt cap is lifted. Stoking fears, Janet Yellen increased the second quarter […]
May 3, 2023
Size Seems To Be All That Matters
Since Silicon Valley Bank’s collapse in early March, only one stock factor has mattered for performance: size. The graph below, courtesy of Bloomberg, shows investors began to play favorites based on size (market cap) once the bank stress among regional banks started. Recent performance implies that larger companies will not be affected by the tighter […]
May 2, 2023
Bad Market Breadth Warrants Caution
The equity markets surged last Thursday and continued upward on Friday on poor economic news and bad breadth. GDP was 1.1%, well below the 2% expectation. The miss was due to higher-than-expected inflation and a drop in personal consumption. Consequently, Fed Funds imply investors are confident of a rate hike this week and a good […]
May 1, 2023
Velocity is the Oft Overlooked Inflation Component
When most economic prognosticators forecast inflation, they often base it on money supply changes. At first blush, such makes a lot of sense. The more money that exists, the less its worth, ergo the more inflation. However, such logic fails to consider how often money circulates. Monetary velocity quantifies the rate at which money is […]
Apr 28, 2023
Freight Recession Warns UPS and JB Hunt
Last week JB Hunt Transportation Services (JBHT) warned that the freight trucking sector was slowing down. JBHT’s President said: “Simply stated, we’re in a freight recession.” UPS echoed their sentiment on Tuesday. First-quarter revenue for UPS fell short of expectations and 6% below last year’s level. Further, they guided forward revenue projections lower. Carol Tome, […]
Apr 27, 2023
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