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Weekly Market Minute

Several U.S. Treasury yields are trading below the Federal Funds Target Rate.

For most of 2022, U.S. Treasury yields followed the path of Fed rate hikes. Yields at the front end of the curve moved higher on anticipation of more rate hikes, but the long end of the curve moved up by less, which resulted in a flattening of the 2y10y and 3m10y curves. The front end...
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Earnings estimates for 2023 are elevated compared to what has occurred in prior economic slowdowns.

The blended y/y earnings growth rate for the S&P 500 is estimated to come in at +5.8% for 2023. Analysts are forecasting a +36.0% jump in Consumer Discretionary earnings, followed by +14.2% in Financials, +13.9% in Industrials, and +10.2% in Communication Services. Energy, Materials, and Health Care are projected to have negative earnings growth at...
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Yield curves are inverted in the U.S. and other major countries.

Historically, curve inversions have been a useful indicator to suggest some unfavorable economic environment likely lies ahead. Today, there are inversions across several curves in the U.S., U.K., Germany, Canada, and elsewhere. The U.S. Treasury 2s10s yield curve has been inverted since July 6, 2022, moving from -4 basis points to -77 basis points as...
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Third quarter earnings highlighted the weakening of corporate profit margins and estimates for future quarters suggest the trend could continue.

The third quarter 2022 earnings season is almost complete and has provided some useful insight into how the corporate sector of the economy is performing and how it is expected to perform in the coming quarters. According to Factset, as of November 11th, the blended y/y earnings growth for S&P 500 companies was 2.2% (with...
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Global business sentiment data did not improve in October.

When reviewing the tables below, it is important to remember that a number below 50 indicates a contractionary environment. S&P Global Composite PMI data for most countries declined on a m/m basis and several made new lows for the year. That trend is unfolding in both manufacturing and services. Source: Macrobond. The Institute of Supply...
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Not-so-positive GDP in 3Q22 and a difficult hand-off to 4Q22.

GDP grew at a 2.6% annual rate in 3Q22, led by a 2.77 percentage point contribution from net exports. Personal consumption expenditures added 0.97, which was a rate of change slowdown from the prior quarter and versus 3Q21. Government spending added 0.42 points, its first positive contribution since 1Q21. Source: Macrobond.  Exports jumped 14.4% q/q...
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Market-based indicators are suggesting higher front-end rates through year-end.

A focus for market participants is the outlook for short-term interest rates and FOMC guidance into 2023. There are market-based indicators that we monitor that can be helpful in tracking how the market is discounting probable outcomes related to short-term lending rates. Overnight index swaps have increased over the last six months and recently moved...
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Shelter prices continued higher in August, keeping the Consumer Price Index elevated.

The Consumer Price Index accelerated 0.39% m/m with Shelter leading the way, contributing 0.24% to the total m/m increase. On a y/y basis, the headline CPI decelerated modestly from last month’s pace to 8.22% from 8.25%. Shelter contributed 2.18% of the total y/y increase, its tenth consecutive month making a new all-time high contribution. Source:...
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Rising volatility in asset markets can have negative impacts on short-term lending markets which has implications for the broader economy.

A core component of economic growth is liquidity, often measured through the cost and availability of credit. The central starting place for liquidity conditions is the short-term collateralized lending market.  This is often viewed as the safest market since it is short duration and has assets posted to offset any losses or delays in payment....
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Housing market data and consumer incomes have not improved in 2022 versus 2021.

In the month of August, existing home sales decelerated -19.87% y/y, following -20.07 y/y in the prior month. This marks the thirteenth consecutive month of negative y/y growth. On a m/m basis, existing home sales fell -0.41% in August after back-to-back declines of more than 5% in June and July. The median sales price of...
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