Baker Market Update
2024-11-29

Bond yields continued their recent move lower this morning despite there being no “new” economic news following the Thanksgiving holiday. This could be due to lighter trading volume in the markets today or part of a larger trend we’ve seen with the 10yr over time. Historically during easing cycles, the 10yr Treasury has seen periods of rallies and retracements within a broader move lower in yields throughout the easing cycle. Each time yields retrace higher, they tend to peak below the prior high-point in a gradual “stair-stepping” down pattern. It’s still very early in the cycle, but the 10yr may already be showing some similarities to previous easing cycles. In October, the 10yr peaked at 4.99, we then saw a rally and retracement back to 4.70 in April. If the rally we’ve seen over the last 12 trading days continues, the same pattern could be showing up again, which would put the most recent peak at 4.45 earlier this month. Again, it’s still very early and the 10yr could certainly go higher than that point, but it is at least interesting to see the early similarities to historical easing cycles.

Enough with the Technical Analysis, we did have some important economic data released earlier this week. The second revision to Q3 GDP was released on Wednesday and remained consistent with the first estimate at 2.8%. Household spending was downgraded slightly, which was offset by a slight upgrade in the price index. Durable goods orders came in lighter than expected at 0.2% (est = 0.5%) while capital goods orders nondefense ex-air (a proxy for business investment) unexpectedly fell 0.2% (est = +0.1%). While still negative, Regional Fed Manufacturing indices ticked up for the month which suggests that business investment “intent” could be improving and the drag on business investment may have been due to uncertainty surrounding the election. Initial jobless claims increased slightly less than expected (+213k vs est of +215k), but continuing claims rose to the highest level in 3 years (1.907mm), suggesting laid off workers are having a harder time finding new work. Personal income increased twice as much as expected (0.6% vs est of 0.3%) while personal spending was in-line at 0.4%. Finally, the Fed’s preferred measure of inflation, the Personal Consumption Expenditure price index (PCE) rose 0.2% in October and 2.3% from a year ago, both in-line with expectations. Core PCE also came in as expected, up 0.3% for the month and 2.8% for the year. Although PCE was in-line with expectations, both the headline and the core year-over-year rates of inflation were an uptick from last month and could point to a bumpy path to 2% inflation for the Fed. Futures markets are currently pointing to a 66% chance of a -25bp rate cut in December.

Next week is Jobs Week so markets will be watching to see the bounce back from October’s lackluster report where the economy added 12k jobs. Expectations are that the economy will add 200k jobs for November and that we’ll see an uptick in the Unemployment rate from 4.1% to 4.2%.

Happy belated Thanksgiving to all and hope you have a great weekend!