Fedspeak "less hawkish," plus Social Security COLA adjustment, Retail Sales, and holiday travel
Fedspeak "less hawkish," plus Social Security COLA adjustment, Retail Sales, and holiday travel
The Sandbox Daily (10.17.2023)
Welcome, Sandbox friends.
Today’s Daily discusses:
upside Fed impulses to Treasury yields are fading
as inflation winds down, so does the Social Security COLA increase
Retails Sales show Americans can't stop, won't stop
more on that struggling consumer
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +1.09% | Dow +0.04% | S&P 500 -0.01% | Nasdaq 100 -0.33%
FIXED INCOME: Barclays Agg Bond -0.72% | High Yield -0.47% | 2yr UST 5.216% | 10yr UST 4.838%
COMMODITIES: Brent Crude +0.76% to $90.33/barrel. Gold +0.08% to $1,922.7/oz.
BITCOIN: +0.09% to $28,517
US DOLLAR INDEX: -0.03% to 106.213
CBOE EQUITY PUT/CALL RATIO: 0.70
VIX: +3.89% to 17.88
Quote of the day
“If you do not know who you are, the market is an expensive place to find out.”
- Adam Smith, The Money Game
Upside Fed impulses to Treasury yields are fading
Last week, Federal Reserve officials were decidedly softer and more cautious in their public statements following weeks of surging yields. This messaging has helped temporarily suspend the unrelenting march higher in rates.
A natural language processing (NLP) model from J.P. Morgan’s team of economists shows Fedspeak has turned “less hawkish” over the past few weeks.
For some perspective, below is a chart showing the longer view of the J.P. Morgan NLP model to give context into what the Fed sounded like over the last two years – reference the blue line below.
Scary.
Given the recent tightening of financial conditions from the long-end of the curve, officials are acknowledging that the market is doing the work for the Fed. This implies less urgency from the Fed to continue tightening.
And this “less hawkish” tone will be put to the test this week with 21 scheduled FOMC public appearances, culminating with Fed Chair Jerome Powell speaking Thursday at 12pm ET.
In fact, just yesterday, Federal Reserve Bank of Philadelphia President Patrick Parker had this to say:
“Small firms are really struggling with access to capital. Some of the bankers I’ve talked to are concerned that their business plans just aren’t going to be able to make it at the higher rates. This is why we should hold rates steady, we should not at this point be thinking about any increases.”
The market continues to closely monitor what the Fed is saying, so continued dovishness should be incrementally accretive to risk assets over the coming weeks.
Right now, the cumulative odds of another hike by year-end continue to fade. Two meetings remain: November 1st and December 13th.
Source: J.P. Morgan, FS Insight, The Washington Post
As inflation winds down, so does the Social Security COLA increase
Roughly 71 million recipients of Social Security will receive a 3.2% increase on their benefits in 2024, far less than 2021’s 5.9% and 2022’s 8.7% historic boosts – reflecting the moderation in consumer prices.
The cost-of-living adjustment, or “COLA” for short, means the average recipient will receive $59 more per month beginning in January, bringing the total to $1,906 in 2024.
Source: Social Security Administration, Wall Street Journal
Retails Sales show Americans can't stop, won't stop
The summer surge in consumer spending appears to have continued into the fall – despite soaring interest rates, bumpy financial markets, and higher gasoline prices.
Retail sales, an economic metric that tracks consumer demand for goods, were up +0.7% in September – much stronger than expectations – while July and August were both revised upwards.
Over the 3rd quarter, retail sales rose at a blistering 8.4% annualized rate.
The retail data shows that American consumers are still willing to spend amid economic uncertainty, effectively keeping a floor underneath the overall economy and allowing the Federal Reserve to keep interest rates higher for longer.
Source: Ned Davis Research, Mike Zaccardi
More on that struggling consumer
Nearly half (48%) of American adults plan to go on an overnight leisure trip this holiday season – Thanksgiving to New Years – per a new Bankrate survey.
This is up from 43% in 2022.
Ted Rossman, senior industry analyst at Bankrate, had this to say:
Source: Bankrate
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.