DoubleLine’s Samuel Lau and Jeff Mayberry run down the numbers for the red market week of Aug. 22-26, with stocks in particular falling in the wake of Federal Reserve Chair Jerome H. Powell’s short speech Friday from the Fed’s Jackson Hole symposium (14:40). The S&P 500 Index was down 4% on the week, with most of that decline coming Friday (2:07). Energy was the best performer while tech was the biggest laggard. In fixed income, the two- and 10-year bond yields finished the week higher, and the long bond rallied a bit after the Powell speech. The Bloomberg US Aggregate Bond Index was down 40 basis points on the week with no green to be seen. Commodities delivered a mixed bag (7:07). Bitcoin was down for the week (9:13) to around $20,000, with Sam and Jeff questioning if its historical round-number bias might presage a 50% climb ($30,000) or fall ($10,000).

Over in Macro Land (11:03), data prints included the S&P Global U.S. manufacturing and services PMI numbers at their lowest since 2020, and core PCE has a long way to go before hitting the Fed’s inflation target. The negative second estimate of Q2 GDP number marked improvement but seems unlikely to hit zero or go positive in future updates. Powell’s speech was the macro event of the week (14:33), and Sam and Jeff dig into the details, including how Powell’s pronouncements were consistent with previous statements by other Fed officials but some equity investors reacted as if it were a hawkish surprise.

The Topic of the Week will be returning the first episode after Labor Day, and if you have any suggestions, please send them in via minutes@doubleline.com or @dlineminutes.

Monday Morning Minutes

MMM Episode 80: Was Powell’s Brief Speech Really a Surprise?

After covering the markets for the holiday-shortened week of Feb. 20-24, mostly positive for stocks (00:18) and bonds (1:52) and mostly negative for commodities (3:30), DoubleLine’s Jeffrey Mayberry and Mark Kimbrough run down a relatively light week of macro news (5:13), including resilient employment numbers and S&P Global U.S. PMI prints in expansionary territory. For their Topic of the Week (11:57), Jeff and Mark look at the recent LEI* release and the way the publisher, the Conference Board, has changed its approach to LEI data that takes the pressure off a bellwether metric that has been pointing toward a recession in the U.S. since July 2022, when it turned negative year-over-year. They go through the 10 inputs that comprise the index and their weightings, and how the Conference Board now does not forecast a recession for 2024. Jeff and Mark discuss this shift in approach, which Mark terms a moment of capitulation on the LEI. Looking ahead to next week (20:41), Jeff and Mark preview some of the upcoming prints, including durable goods; home prices; consumer confidence; and the PCE, the Fed’s favorite inflation metric.

*For more on the Conference Board Leading Economic Index, check out Episode 29: Recapping Markets/Macro and Eyeballing the LEI

Moment of Capitulation on the LEI (E154)

Portfolio Manager Jeff Mayberry and Quantitative Analyst Eric Dhall review markets for February (0:47) and the week ended March 1, 2024 (3:31) as well as the week’s macro news (7:00) and Fedspeak (16:51). For their Topic of the Week (19:36), Jeff and Eric explain how to use the Chicago Mercantile Exchange’s FedWatch Tool to obtain the market’s probabilities of future levels in the federal funds target rate from fed funds futures prices. They also discuss reasons to be skeptical of long-range market probabilities for rate changes and how the November presidential election might constrain the time window within which the Federal Reserve is willing cut rates. Looking ahead to the week of March 4-8 (27:19), Jeff and Eric will have on their radar ISM services, JOLTS, whole trade and inventories reports; the Federal Reserve’s latest Beige Book release; and above all Friday’s raft of February labor market prints, including February changes in payrolls and unemployment rate.

Using Fed Funds Probabilities – with a Grain of Salt (E155)

DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau cover a negative week ended March 8 for the S&P 500 (0:48), contrasting with a positive week for that index’s equal-weighted cousin; a positive week (3:16) for all major fixed income sectors; and weekly gains (5:46) for commodities and Bitcoin. After reviewing the week’s macro news (8:51) and Jerome Powell’s congressional testimony (13:10), Jeff and Sam dive into the Topic of the Week (14:36): the government’s household and establishment surveys in the labor market. Their discussion includes factors behind recent divergent readings of flat-to-rising unemployment and strong nonfarm payrolls as well as falling business participation rates in the establishment survey. Then they preview the key macro news releases (28:28) for the week of March 11-15, in particular, the February consumer price index (Tuesday) and import prices (Friday).

Jeff and Sam Demystify Divergent Labor Surveys (E156)

For the week ended March 15, 2024, DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau survey the equities (1:17), fixed income (3:20) and commodities (5:44) markets. Then they dive into the week’s heavy macro news schedule (8:10), including CPI, PPI and import price readings and the week’s inflation-driven rate sell-off (10:44) and lowered rate-cut expectations (15:13) as they look ahead to the March 20 meeting of the Federal Open Market Committee.

Stickier Inflation, Higher Yields, Lower Rate-Cut Expectations (E157)

For the market week ended March 22, 2024, DoubleLine’s Samuel Lau and Mark Kimbrough recap a mostly positive week for equities (2:39) and fixed income (4:03) while commodities dipped (6:43). For the Topic of the Week (13:20), Sam and Mark do a deep dive on this week’s Federal Open Market Committee (FOMC) meeting and subsequent press conference by Federal Reserve Chair Jerome H. Powell. A quarterly meeting means a Summary of Economic Projections (SEP) from FOMC members, so after reviewing the rates and changes, if any, Sam runs through the new SEP forecasts, with some notable updates. Mark parses the Fedspeak in recapping Powell’s press conference (20:34), observing that while the SEP forecasts seemed rather hawkish, Powell’s statements seemed on the dovish side.

In their review of Macro Land (7:28) for the week of March 18-22, Sam and Jeff’s coverage includes job data, a preliminary manufacturing PMI print and a Leading Economic Index report that raises more questions on how to read this recession gauge. Looking ahead (29:00), the Good Friday-shortened week of March 25-28 will bring numbers on jobs, home prices and consumer confidence while the PCE print will come out on the holiday of March 29.

Because of the holiday next week, Minutes will be recording Thursday, March 28.

*For more on the topics covered in this episode, check out:
Episode 112: Red Week, Recession Metrics and the Overnight Reverse Repo Facility
Episode 58: Hard Look at the Fed’s Rare “Soft Landings”
Episode 21: Excess Reserves
Episode 18: Fed’s overnight reverse repurchase agreement facility

FOMC Fedspeak: Hawkish or Dovish? (E158)

DoubleLine Portfolio Managers Samuel Lau and Jeffrey Mayberry review the market week of March 25-28, 2024, shortened by the Good Friday holiday. Sam and Jeff also recap March and first quarter performances for equities, fixed income (3:59), commodities (6:24) and Bitcoin (9:13). Over in Macro Land (9:39), they look at housing prices, jobless claims and a GDP fourth quarter estimate, noting that the markets will be closed when the PCE and personal income prints are released Friday. In addition, Sam and Jeff discuss market expectations for Federal Reserve rate cuts this year – still hanging in at three – and the status of the Fed’s overnight reverse repo facility. Looking ahead (15:38), next week’s prints will include ISM manufacturing and services PMI data, a JOLTS update and employment numbers from ADP and the U.S. Bureau of Labor Statistics. This episode was recorded March 28, 2024, before the close of trading.

Q1 2024 Is in the Books (E159)

After their review of equity (1:08), fixed income (2:20) and commodity (4:14) markets for the week ended April 5 and of recent macro news, DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau for their Topic of the Week (16:14) discuss the Treasury General Account and the relationship between TGA balances, Treasuries securities issuance and the duration of the Treasury market. Then Jeff and Sam highlight the important upcoming macro items (30:13) for the April 8-12 market week, including March prints of the consumer and producer price indexes.

TGA Balances and Treasury Securities Duration (E160)

DoubleLine Portfolio Manager Samuel Lau and Quantitative Analyst Eric Dhall review the market week of April 8-12, for stocks (1:04) and fixed income (5:05). Both asset classes were stung by the April 10’s report of a hotter-than-expected consumer price index in the March, although bonds staged a partial comeback Friday on a safety trade driven by fears of an escalating conflict in the Middle East. Samuel Lau next covers commodities (10:19), which stayed in the green for the week. In the macro discussion for the week (12:29), Eric Dhall takes a look under the hood of the March CPI report. In particular, he notes some troubling data in the services sector, which accelerated from 0.35% month-over-month in February to 4% in March. Sam Lau surveys (26:43) the week’s Fedspeak and the declining probabilities price into the fed funds figures market for more than one rate cut in 2024. Looking ahead to the week of April 15-19 (30:55), Sam and Eric have their sights trained on retail sales (Monday); industrial production, capacity utilization and manufacturing production (Tuesday); the Fed’s Beige Book release (Wednesday); and jobless claims and the LEI (Thursday).

A Market Squeeze on Hotter Inflation, Falling Rate Cut Expectations (E161)

As DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau note in their survey of markets for the week ended April 19, both equities as tracked by the S&P 500 (0:52) and fixed income as tracked by the Bloomberg US Aggregate Bond Index (3:32) ended in the red while commodities (8:07) continued month-to-date to be a sanctuary of positive returns. In his review of the week’s macro prints and Fedspeak (10:22), Jeff takes issue with the Conference Board “kind of changing the goal posts” with regard to reading its Leading Economic Index. The LEI has been flashing recession ahead since July 2022. Looking ahead to the April 22-26 market week (19:05), the most important macro bogeys on Jeff and Sam’s radar are the advance estimate of 1Q2024 gross domestic product (Wednesday) and the Personal Consumption Expenditure Deflator (Friday).

Red Stocks and Bonds, Green Commodities (E162)

For the week ended April 26, 2024, DoubleLine Portfolio Managers Jeff Mayberry and Samuel Lau review equities (1:00), fixed income (3:25) and commodities (5:52) markets. Then they discuss the week’s macro news (6: 46), including more reports of sticky inflation and slower-than-expected growth as evidenced in the preliminary GDP estimate for 1Q2024. For their Topic of the Week (14:16), Sam and Jeff explain stagflation, concluding that this phenomenon so far is absent, but it behooves investors to be on the lookout for it if growth slows further amid stubborn inflation. Looking ahead to the April 29-May 3 macro calendar (23:48), they will be especially interested in the Treasury quarterly refunding Wednesday, which front runs the Federal Open Market Committee meeting the same day. While markets have priced in the FOMC standing pat on the federal funds rate, Jeff Mayberry will be watching Fed officials’ guidance on a possible tapering of quantitative tightening.

MMM Episode 80: Was Powell’s Brief Speech Really a Surprise?

Monday Morning Minutes

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