Author: Tim McPartland

After a week of falling interest rates it looks like we will have a bit of a change of direction today as the 10 year treasury yield is around 4% this morning – up from 3.94% yesterday – let’s hope we can keep rates in the 4% area, or at least have movements that are modest day to day.

Even with falling interest rates all week I have seen little (or no) movement in my portfolio as prices do some ‘backing and filling’–the good part is at least values didn’t drop more and patience will be rewarded–eventually.

Yesterday we had GDP announced for the 1st quarter and it was stronger than anticipated while durable goods orders were softer than expected–so a mixed bag. Today we have the personal consumption expenditures price index deflator being released at 8:30 a.m. with consumer sentiment at 9 a.m. and the pending home sales index coming at 9 a.m. as well (all times central time). The PCE has potential to move markets.

It is almost time again for the FED to hike interest rates–Wednesday next week. This will be a wild day–all focus on the press conference after the 3/4% rate hike. Markets are probably set up right now for huge moves that day–hints of a pause send prices skyrocketing up while a hawkish tone will send prices plunging.

Today I will likely do nothing–after being out of the office yesterday I need to review numbers and see where I might add shares and I am not in a rush to buy.

Yesterday was an interesting day for income issues.

With interest rates falling yesterday I noticed that preferreds and baby bonds bottomed and rose a fair amount, before falling back off again as the ‘nervous nellies’ took the opportunity to sell into the rally. This is exactly the way it works–prices fall and continue falling for months while eventually there is a reason to buy like yesterday (falling rates and whispers of Fed pausing). Then as buying sets in and pushes prices higher all of the ‘nervous nellies’ take the opportunity to sell. I watched my accounts yesterday and I had a gain of around .5 or .6%, before ending the day up .2%.

Am I saying the bottom is in—NO. No one will know when the bottom is in and we may need to see numerous replays of this price action and then it will be weeks or months before we know the low is in (20/20 hindsight of course).

Today we have important economic news being released in a couple hours with the 1st read on 3rd quarter GDP being released. The forecast is 2.3%–a beat or a miss could move interest rates. We also have the durable goods report with a forecast of .7%.

For what it is worth (not very much recently) the S&P500 futures are pretty close to flat at this moment with the 10 year treasury yield bouncing between 4.06% and 4.08%.

I will be out of the office during trading hours today so will not do any buying–I don’t make any trades on my phone.

Once again we see ‘soft’ economic data and substandard earnings in the tech sector and interest rates and equity prices ‘party’. Actually it is kind of nice to have days like the last few–give us all a mental rest. My accounts have bounced a little–with the emphasis on ‘little’.

New house sales came in soft this morning – down 10.9% from August and down 17% from a year ago—not exactly a crumbling market, but directionally favorable for interest rates. The 10 year treasury yield is all the way down to 4.01%–down about 10 basis points. Seems folks are hanging their hats on a ‘pause’ or less hawkish view from the Fed come 11/2–moving these markets higher kind of sets us up for potential disappoint from Fed Chair Powell.

Yesterday I did nibble on the 2 issues I mentioned – here. Now I am looking to see if I want a little more of the Customers Bancorp (CUBI) 5.375% baby bond (CUBB) with a current yield of 6.62% and a maturity in 2034–with cash positions being very low I am ‘shopping’ carefully.

Google and Microsoft earnings last night may well serve to soften equity prices today–at least the Nasdaq and the S&P500. Both big tech firms missing the earnings forecast and it is almost a certainty that Meta Platforms (Facebook) will miss tonight. Of course this is not my area of interest on a company level basis–but it does serve to show a potentially weakening macro environment. Plus it appears that some of these big tech firms are going to have to have layoffs – certainly something they have not dealt with in recent years (if ever).

The 10 year treasury yield is off 4 basis points this morning at 4.06%. Will rates break back below 4%? Have rates peaked? It is possible, but I doubt it—but no one knows. The ‘smart people’ have posited a peak for the last 50 basis points—completely wrong of course. Income securities barely moved on yesterdays interest rate drop–we need this area of rates to hold for a week or more to build investor confidence.

Yesterday we had house price news with both Case Shiller and FHFA showing softening house prices–although far from falling off a cliff. Consumer confidence came in soft as well with a reading of 102.5 versus a forecast of 106.3.

Today we have new home sales being announced with a forecast of 593,000 which would be around 15% below a year ago. If we were to see a large deviation on this number it could move interest rates in either direction.