What Happened:

Treasury auction for US 30-year bonds struggles

What Does It Mean:

On a regular basis our US Treasury sells bonds to finance our country’s growing deficits and debt load. One would assume that as interest rates have risen, demand for our debt would increase in step however Thursday’s 30-year treasury auction came in weaker than expected. When this happens, interest rates need to rise even further to accommodate the lack luster demand. This interest rate development is removed from the Federal Open Market Committee (FOMC) and a natural result of global uncertainty surrounding America’s ability to repay our debts.

Why do we care?

Inflation has been the biggest struggle for the Federal Reserve and is why they have raised short term rates faster than any time in history. While the FOMC current short term rate target seems to be at a level that suggests at minimum a pause, the bond market now seems to be facing additional pressure for longer term debt due to a decline in demand.

Since our country operates on the ability to freely borrow money, should this change, we believe it may create further headwinds for not only our US Government but general markets as a whole. Once news of the auction was released, stocks turned lower on the day. So far this isn’t big news among the media but something we’ll be keeping a close eye on.

Source: Yahoo Finance 11/10/23

What Happened:

Fed Chair Jerome Powell discussed the possibility for higher interest rates while speaking at an economic forum.

What Does It Mean:

Since 2022 began, the inverse correlation between stocks and interest rates has been very strong. All throughout 2022 when the FOMC was raising rates, the stock market and bond market struggled. 2023 has proven to be a better year for stocks due in part to the general consensus that the Fed is closer to being finished with their tightening.

Unfortunately for investors, in our opinion, any time Jerome Powell says otherwise, stocks seem to dip quickly.

Why do we care?

In our opinion, the inflation and interest rate connection is the primary diver of equities in this environment. While we do not anticipate the Fed raising rates again for the year or into 2024, markets seem to be extremely skittish when there is even a hint otherwise.

November 14th marks the latest reading of the Consumer Price Index (CPI) which, in our view, will be a key tell for the near future. With oil prices coming down considerably of late, and a general economic slowdown being reported in many indicators such as the ISM Institute of Supply Management or ADP Payrolls, we anticipate a soft CPI and a general resumption of the equity uptrend into year-end.

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What Happened:

Credit Card data continues to signal a consumer on their last leg.

What Does It Mean:

As reported, credit card balances are now at levels not seen in many years. Furthermore, banks are reporting that delinquencies are on the rise. For the time being, this doesn’t mean much from a consumer standpoint as we continue to see strong retail sales and consumer driven activity. In our opinion, the consumer continues to shop and shop without any real regard of the future.

Why do we care?

While we remain bullish of stocks into year end and in particular 2024, we do believe a day of consumer reckoning may be on the horizon. In our opinion, the combination of higher prices, stretched incomes and a general disregard for financial responsibility (as noted by delinquencies) does not bode well once we eventually see an uptick in job loss. It’s still early in the game but similar to the global bond demand for US treasuries it is something that remains on our radar.

Until next time

~ Quint

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