Thelma and Louise or Rebel without a Cause? A Whipsaw Week in Washington

Wardwell’s Weekly Market Report

Observations on the Capital Markets – Week Ended September 27, 2013

  • Movies to match the political fight in Congress
  • Not passing a budget today is not hitting an immediate fiscal cliff
  • What gets cut if there’s no resolution?
  • Last Week’s Job Market and Consumer News, Some Good Continue reading

Teenage Melodrama and the Market’s Infatuation with QE

Like a teenager caught between the decision of going to college and leaving friends behind or living in the comfort of home and going nowhere, debt markets have been reeling between taper angst and infinite quantitative easing euphoria.

And like that teenager, investors are wondering, “Where should I go from here?” The problem is the cues we have been trained to watch for. Unemployment (was that a 6.5% or 7% target?), inflation, or, wait . . . no, it’s housing prices, right? We are now all confused, adrift without anchorage! Continue reading

Surprise! No Tapering and More Budget Progress than Meets the Eye.

Wardwell’s Weekly Market Report

Observations on Events and the Capital Markets – Week Ended September 20, 2013

  • Surprise!
  • Before the Fed announcement: a batch of pretty solid economic reports
  • After the Fed announcement: still more solid economic reports
  • More progress on the budget than meets the eye of the T.V. networks
  • Fed watch: speeches galore


On Monday, Larry Summers exited the pool of candidates for the next Federal Reserve (Fed) chairman. (Only the timing was really a surprise.) On Wednesday, the Fed didn’t taper and de-emphasized several of the targets they’d set earlier. (Big surprise versus consensus – not central bank best practices). Municipal bond offerings by Puerto Rico, California, and Illinois were met with strong investor demand. Continue reading

How Did The Fed Catch Markets Off Guard? What Does it Mean for Investors?

The Fed’s decision on Wednesday caught the markets off guard – rather than begin tapering, as most expected, it held off, announcing it would stay the course. The market seemed thoroughly surprised, which is why the reaction was strong and aligned directionally across most markets – we saw U.S. Treasuries and equity markets rally, while the dollar weakened.

This reaction is ironic because the Fed has gone through a lot of trouble to reduce volatility through forward guidance, press conferences, etc., The Fed’s “body language” since May has suggested that they were going to taper and, had they done so, the markets probably would not have reacted much at all. I thought the Fed was in a good position to start their tapering in U.S. Treasuries because most of the economic data has been improving.

Continue reading

Will Europe’s Improving Economy Push Interest Rates Higher?

In a recent conversation, my colleague, Tanguy Le Saout, Head of European Fixed Income, offered these thoughts on the outlook of the European economy.

What brought renewed confidence in the Eurozone’s economy?
Gross Domestic Product (GDP) increased in the second quarter after six straight declines. Data expectations were on the optimistic side, but investors appeared to become more confident before the release, thanks to encouraging evidence from supposedly reliable forward-looking indicators. The global PMI (Purchasing Managers Index) rose above 50 this summer, indicating that a majority of surveyed companies expanded their activity, with the Euro Area providing good support for the first time in two years. The PMI staged a slow recovery about a year ago, whereas GDP data have been in “recession territory” until recently. That’s why the PMI has gained a reputation for being forward-looking. Continue reading

Larry Summers Helps Clarify the Future Path of Fed Policy

Wardwell’s Weekly Market Report

Observations on Events and the Capital Markets – Week Ended September 13, 2013

  • Kerry inadvertently averts a war; the long-term implications are unknowable
  • Low growth, low inflation—the new Goldilocks?
  • A few consumer clouds on the horizon
  • Larry Summers helps clarify the future path of Fed policy

Kerry Inadvertently Averts a War
Last Monday, at a London press conference, U.S. Secretary of State John Kerry responded to a reporter’s question about what might avoid a military move against Syria by ad-libbing that Assad could give up his chemical weapons. As you probably know, Russia promptly endorsed the idea and Assad promptly agreed. The long-term implications of this development are unknowable; what matters now is that the risk of a U.S strike declined sharply last Monday. Over the most recent weekend, the U.S. and Russia have apparently agreed on key details, further reducing the probability of an attack.

  • Bonds returns were modestly positive as ten-year Treasury yields fell 4 basis points (bps) to 2.90% and the 10-year TIP yield fell 7 bps to 0.80%.
  • Equities rallied strongly led by the MSCI Japan Index (+3%) followed closely by MSCI Emerging Market Index (+2.5%), the S&P 500 (+2%), and MSCI Europe Index (+1.5%). Within the S&P 500, Industrials (notably capital goods) and Consumer Discretionary (notably media) led; Energy and Information Technology lagged.
  • Commodities: Oil was down 2%; gold was down 5%. Continue reading

The Next Big Challenge to Investors: Rising Rates

Many investors were conditioned to accept that the economy would be in the rehabilitation ward for the foreseeable future, rates would remain low, and monetary stimulus would continue unabated. It was an increasingly dangerous mindset. Now that’s changing with the slow but steady recovery of the economy and the Federal Reserve’s announcement in August that it may begin “tapering” its billions in monthly bond purchases designed to keep rates low and boost asset prices. These fiscal, financial and policy changes usher in the next great risk for bond investors: the potential return of higher interest rates. So I continue on the subject of “duration” and the risk that it poses to fixed income investors. Continue reading


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