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Market Snapshot
briefing.com
| Dow | 33706.02 | +6.19 | (0.02%) | | Nasdaq | 11709.97 | -79.63 | (-0.68%) | | SP 500 | 4238.39 | +156.89 | (3.84%) | | 10-yr Note | -6/32 | 3.74 |
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| | NYSE | Adv 1531 | Dec 1404 | Vol 860 mln | | Nasdaq | Adv 1932 | Dec 2558 | Vol 4.8 bln |
Industry Watch
| Strong: Energy, Health Care, Utilities, Consumer Staples, Industrials, Financials, Real Estate |
| | Weak: Consumer Discretionary, Information Technology, Communication Services |
Moving the Market
-- Lingering sense the market got overextended
-- Treasury yields remain elevated, keeping pressure on equities
-- Rising oil prices after Russia said it will cut its production by 500,000 barrels per day in March in response to international sanctions
-- Weak showing from the mega cap space
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Closing Summary
10-Feb-23 16:30 ET
Dow +169.39 at 33869.22, Nasdaq -71.46 at 11718.14, S&P +8.96 at 4090.46
[BRIEFING.COM] Today's trade was decidedly mixed with buyers and sellers both lacking conviction. The Dow Jones Industrial Average and S&P 500 closed with modest gains while the Nasdaq finished the day with a decline. Notably, there was a late afternoon push higher, but the S&P 500 was unable to reclaim a position above the 4,100 level.
Market internals reflected the mixed action behind today's price action. Advancers led decliners by an 11-to-10 margin at the NYSE while decliners led advancers by roughly the same margin at the Nasdaq.
Lagging mega cap stocks kept pressure on index level performance. The Vanguard Mega Cap Growth ETF (MGK) fell 0.6% while the Invesco S&P 500 Equal Weight ETF (RSP) registered a 0.3% gain. Tesla (TSLA 196.89, -10.43, -5.0%) was a losing standout among the mega cap stocks amid investors' concerns that a potential Department of Transportation order could force Tesla to make its charging stations available to other electric vehicles.
A weak showing from Tesla, along with Amazon.com (AMZN 97.61, -0.63, -0.6%), led the consumer discretionary sector (-1.2%) to last place among the 11 sectors. Earnings-driven losses for a few smaller components, namely Expedia Group (EXPE 107.64, -10.07, -8.6%) and Mohawk Industries (MHK 115.77, -5.70, -4.7%), also contributed to the sector's underperformance.
On the flip side, the energy sector (+3.9%) logged the biggest gain by a wide margin as oil prices reclaimed lost ground. WTI crude oil futures rose 2.6% to $79.66/bbl in response to Russia saying it is going to cut production by 500,000 barrels per day in March in response to international sanctions.
The Treasury market was also mixed today. The 10-yr note yield rose six basis points to 3.74%, losing ground after the University of Michigan Consumer Sentiment Index showed year ahead inflation expectations increasing to 4.2% from 3.9%, while the 2-yr note yield fell one basis point to 4.51%.
Nasdaq Composite: +12.0% YTD
Russell 2000: +9.0% YTD
S&P Midcap 400: +8.6% YTD
S&P 500: +6.5% YTD
Dow Jones Industrial Average: +2.2% YTD
Reviewing today's economic data:
- February Univ. of Michigan Consumer Sentiment - Prelim 66.4 (Briefing.com consensus 65.0); Prior 64.9
- The key takeaway from the report is the understanding that the year-ahead inflation expectation increased versus January, raising concerns, along with angst over rising unemployment, about consumers' future discretionary spending capacity.
- The Treasury Budget for January showed a deficit of $38.8 bln versus a surplus of $118.7 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the January deficit cannot be compared to the deficit of $85.0 bln for December.
There is no U.S. economic data of note on Monday.
S&P 500 sectors push into the green ahead of the close
10-Feb-23 15:35 ET
Dow +122.17 at 33822.00, Nasdaq -101.99 at 11687.61, S&P +1.47 at 4082.97
[BRIEFING.COM] Things are little changed heading into the close. The main indices continue to chop around narrow ranges, maintaining positions comfortably above session lows.
More S&P 500 sectors have pushed into positive territory recently. Energy (+3.9%) maintains its lead, followed by utilities (+1.7%), health care (+1.0%), and consumer staples (+0.7%). The heavily weighted consumer discretionary (-1.5%), communication services (-0.9%), and information technology sectors (-0.8%) are alone in the red.
There is no U.S. economic data of note on Monday.
Energy complex settles higher
10-Feb-23 15:05 ET
Dow +6.19 at 33706.02, Nasdaq -79.63 at 11709.97, S&P +156.89 at 4238.39
[BRIEFING.COM] Recent trading had the main indices chopping around a narrow trading range.
A short time ago, Defense Department spokesperson John Kirby confirmed at a White House press conference that the US military shot down an "unmanned object" over Alaska, adding that they do not know who owns the object and that the object landed on frozen water so it should be easy to recover.
Energy complex futures rose this session after Russia said it is going to cut production by 500,000 barrels per day in March in response to international sanctions. WTI crude oil futures rose 2.6% to $79.66/bbl and natural gas futures rose 4.9% to $2.53/mmbtu.
On a related note, the S&P 500 energy sector (+3.8%) has maintained its first place position by a wide margin.
January budget deficit fueled by rise in outlays
10-Feb-23 14:25 ET
Dow +103.47 at 33803.30, Nasdaq -101.23 at 11688.37, S&P -2.41 at 4079.09
[BRIEFING.COM] The major averages have moved sideways in the last half hour, the benchmark S&P 500 (-0.06%) narrowly lower.
The Treasury Budget for January showed a deficit of $38.8 bln versus a surplus of $118.7 bln a year ago. The Treasury Budget data is not seasonally adjusted, so the January deficit cannot be compared to the deficit of $85.0 bln for December.
Total receipts of $447.3 bln fell 3.8% compared to last year while total outlays of $486.1 bln rose about 40.3% compared to last year.
The total year-to-date budget deficit now stands at $460.2 bln vs $259.0 bln at this point a year ago.
Gold ends modestly lower on the session, week
10-Feb-23 13:55 ET
Dow +122.65 at 33822.48, Nasdaq -85.87 at 11703.73, S&P +2.04 at 4083.54
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.73%) is still the worst-performing major average, on pace to close out a -2.52% loss this week.
Gold futures settled $4 lower (-0.2%) to $1,874.50/oz, retreating in the midst of a stronger greenback and treasury yields.
Meanwhile, the U.S. Dollar Index is up about +0.4% to $103.62.
As a reminder, the Treasury Budget for January will be released in about 5 minutes at the top of the hour.
Page One
Last Updated: 10-Feb-23 08:55 ET | Archive
Shift work
The S&P 500 started yesterday above the 4,100 level. Today, it will start the session looking up at 4,100 after a steady wave of selling interest in Thursday's session interrupted the stock market's rebound effort.
That selling was partly a byproduct of how far the stock market had come in such a short time and partly in response to rising interest rates. The performance of Dow component Walt Disney (DIS) captured yesterday's shift in tone perfectly. DIS had been up as much as 5.7% following its well-received earnings report and restructuring announcement, yet it closed the day down 1.3%.
In turn, the 2-yr note yield, which skirted 4.40% at its low Thursday morning, settled the session at 4.52%. The 10-yr note yield, which saw 3.58% at its low Thursday morning, settled the session at 3.69%. Those shifts started around the time the stock market opened but they went into overdrive following the weak 30-yr bond auction at 1:00 p.m. ET.
The selling has carried over today, more so for stocks than for bonds.
Currently, the S&P 500 futures are down 16 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 80 points and are trading 0.6% below fair value, and the Dow Jones Industrial Average futures are down 80 points and are trading 0.2% below fair value. The 2-yr note yield is down two basis points to 4.50% and the 10-yr note yield is down one basis point to 3.68%.
There isn't any sense of urgency on sellers' part in these indications; however, there isn't any sense of urgency on buyers' part either.
A nagging sense that the stock market needs to have a consolidation period, dictated either by time (i.e., lateral movement for extended period) or price (i.e., a downturn), was already seeping into the market's mindset after the huge rally in January and extension into February.
Valuation concerns factored into that thinking and have gained some more attention with the shift higher in market rates following the strong January employment report and the Fed's steady cadence that more rates hikes are likely to be appropriate.
Some halting factors this morning include weakness in the mega-cap stocks, a bump in oil prices ($79.08, +1.02, +1.3%) after Russia said it will cut its production by 500,000 barrels per day in March in response to international sanctions, and presumably a bit of hesitation by traders waiting to see if the S&P 500 will show its patented resilience this year and quickly get back above 4,100 or fall prone to additional downward price action.
The equity futures have moved off their lows of the morning, yet the comeback still isn't as great as the setback, so the shift to lower prices is expected at the open.
-- Patrick J. O'Hare, Briefing.com
Terex shares ascend to 52-week highs on excellent Q4 numbers and resilient demand (TEX)
Terex (TEX +5%), a manufacturer of aerial work platforms and materials processing machinery used in multiple industrial applications, is ascending to 52-week highs today following its Q4 earnings report. TEX smashed earnings estimates on accelerating revenue growth. Sales are not expected to cool off significantly either, as TEX guided to FY23 revs of $4.6-4.8 bln, representing 7% growth yr/yr at the midpoint and much higher than the relatively flat growth analysts expected. The company also anticipates EPS of $4.60-5.00, underpinning progress toward its five-year financial targets detailed in December. Also, TEX raised its quarterly dividend by 15% to $0.15 per share.
- Headline numbers were robust, with EPS expanding by 60% yr/yr to $1.34 on top-line growth of 23% to $1.22 bln. Operating margins improved by 290 bps yr/yr to 9.9%, reflecting early success from TEX's recently outlined initiatives to improve profitability. In fact, TEX's Q4 results were largely a reflection of early progress toward capitalizing on the five themes the company outlined during Investor Day in December.
- One theme TEX detailed was capitalizing on megatrends, such as electrification, waste recycling, and infrastructure investments. The 21.2% jump in TEX's Materials Processing segment, which consists of customers in construction, infrastructure, and recycling projects, to $550.3 mln in the quarter spotlights early success in this area. As does the 25.7% bump in Aerial Work Platforms, which consists of TEX's Terex and Genie brands, to $671.8 mln.
- TEX's Genie banner, a primary area of focus, continued to reduce costs to help profitability through the current unfavorable economic cycle. TEX is maintaining focus on margin improvement as it pinpoints attractive growth opportunities mainly due to electrification by its customer base in FY23. Electrification is also a central component of TEX's utilities business, another point of emphasis it outlined during Investor Day.
- Regarding FY23, supply chain constraints will remain a problem. Supply on-time delivery improved sequentially in Q4 but continues to track well below historical norms. Costs have eased in some markets, but overall, they continue to increase as inflation trickles its way through various supply chain tiers.
- Still, as we heard last quarter, demand remains sound, illuminated by the positive sales growth across TEX's businesses despite continually raising prices. Management also mentioned that elevated customer fleet ages and historically low dealer inventory levels continue propping up robust demand dynamics.
Bottom line, TEX produced excellent numbers in Q4, a testament to the firm's ability to circumvent lingering supply chain issues. After selling pressure following TEX's FY27 financial targets on December 13 eased, the stock has been on a solid run, trekking over 30% higher. TEX is proving its capacity to deliver encouraging quarterly results despite an unfavorable macroeconomy. Still, we think it is better to wait for a pullback, possibly toward the stock's 50-day moving average (46.23), before entering, especially given the heightened uncertainty present in the economy that TEX's peers have noted in recent weeks.
Lyft falls further behind in Uber's rearview mirror, forcing it to cut prices (LYFT)
The separation between rideshare leader Uber (UBER) and its smaller rival Lyft (LYFT) is growing wider. Following a very strong earnings report from UBER on Wednesday that featured record highs for adjusted EBITDA, Mobility gross bookings, and trips, LYFT badly missed 4Q22 EPS estimates and issued a weak outlook for 1Q23.
- The earnings shortfall did include insurance reserve adjustments in accordance with SEC standards, perhaps making the miss look worse than it really was. In fact, when using the prior accounting method, LYFT's adjusted EBITDA totaled $126.7 mln, easily topping its outlook of $80-$100 mln. The inclusion of insurance reserves -- money set aside to pay for claims -- had a huge impact on LYFT's financials, pushing that $126.7 mln number down to ($248.3) mln.
- Insurance matters aside, the Q4 results and Q1 guidance still suggest that LYFT is drifting further behind in UBER's rearview mirror. In fact, LYFT CEO Logan Green acknowledged that competitive factors played a role in the company's disappointing performance, stating, "Relative to three months ago, competitive dynamics have changed... We must prioritize competitive service levels."
- In other words, Green is saying that LYFT needs to become more competitive on price in order to regain the market share that it lost. In Q4, the company actually surpassed topline estimates and generated the highest quarterly revenue in its history. However, this was mainly achieved through price hikes, as illustrated by an 11.3% qtr/qtr increase in revenue per rider to $57.72. Active Riders, on the other hand, were essentially flat qtr/qtr at 20.3 mln.
- Lower prices should enable LYFT to better capitalize on the same favorable rideshare trends that are fueling UBER's strong results. Specifically, the return to the office for many employees, robust travel demand, a shift in spending towards services/experiences, and sky-high vehicle prices, are combining to propel the rideshare market above pre-pandemic levels.
There are some key issues and risks involved with this strategy, though.
- For instance, lower prices will translate into lower contribution margin. On that note, LYFT guided for Q1 contribution margin of roughly 47% compared to 54.4% in Q1. When combined with LYFT's forecast of a 17% sequential decline in revenue to $975 mln -- which is partly due to seasonality -- the sharp decline in contribution margin led to a very weak adjusted EBITDA outlook of $5-$15 mln. It's also notable that LYFT conceded that it's now unlikely to reach its goal of $1.0 bln in adjusted EBITDA by 2024.
- Another concern is that LYFT could lose some drivers at the hands of UBER. Lower prices mean lower wages for LYFT's drivers and UBER already has an advantage since it offers two income-generating opportunities -- rideshare and delivery.
- Currently, the driver supply situation is very healthy for both companies, with LYFT CFO John Zimmer stating that driver supply in Q4 was the best it's been in three years. If a significant number of drivers begin migrating over to UBER, though, LYFT could find itself back in a position where it needs to ramp up profit-destroying driver incentives.
The main takeaway is that LYFT finds itself between a rock and a hard place as it loses ground to UBER. Either the company keeps prices higher, and risks losing more market share, or it cuts prices, and risks losing drivers while its earnings also plummet.
PayPal's Q4 report and decent outlook checks out, sending shares slightly higher on the day (PYPL)
PayPal (PYPL) is carving out gains today following its earnings beat and fairly encouraging outlook in Q4. There was some uneasiness heading into PYPL's report, illuminated by the stock slipping roughly 10% from February 2nd highs after some of its competition and partners, like Alphabet (GOOG), Amazon (AMZN), and Affirm (AFRM), delivered concerning quarterly reports. Although there were still a few areas of concern within PYPL's Q4 results, the company dished out confidence-inspiring numbers for the most part, and CEO Daniel Schulman, who announced his retirement within the next year, carried an optimistic tone throughout the call.
- PYPL topped its Q4 adjusted EPS expectations of $1.18-1.20, expanding its bottom line 11.7% to $1.24 while growing revs in line with its forecast, registering 6.7% growth to $7.38 bln. Management detailed how the company was on track to surpass its earnings forecast and grow revs in line with previous projections in early December, so investors had likely priced in these positives from Q4.
- Total Payment Volume (TPV) climbed 5% yr/yr on a spot basis and 9% excluding currency fluctuations, edging past PYPL's prior targets.
- However, net new actives (NNAs) of 2.9 mln were flat sequentially, missing PYPL's 3-4 mln goal.
- Perhaps more notable, PYPL's non-GAAP operating margins expanded for the first time since 1Q21 in Q4, adding 115 bps yr/yr to 22.9%, marking a return to profitable growth.
- Identifying cost savings has been a top priority for PYPL in recent months. Recall PYPL's decision to trim its global workforce by around 7% late last month. PYPL also noted that it discovered an incremental $600 mln of cost savings on top of the already announced $1.3 bln. Outgoing CEO Daniel Schulman stated that the organization is confident its cost structure will enable ongoing investments in high-conviction growth initiatives while helping expand margins.
- Mr. Schulman added that discretionary spending will likely remain under pressure throughout the year, while global e-commerce growth should just squeak into positive territory. Still, the company is also seeing disinflationary signs, which should result in an uptick in spending. Encouragingly, management commented that Q1 is already off to a much stronger start than anticipated, with branded checkout volumes accelerating sequentially.
- As a result, PYPL expects Q1 revs to expand by around 7.5% on a spot basis and 9% excluding FX impacts yr/yr, and earnings of $1.08-1.10, topping consensus.
- However, due to heightened uncertainty, PYPL is still not providing full-year revenue guidance. Still, its earnings forecast of $4.87 soared past analyst expectations. PYPL noted that this guidance assumes sales growth in the mid-single-digits on a currency-neutral basis. It also does not expect total active accounts to grow this year.
Overall, PYPL rang up a decent quarter, especially after some nerve-racking reports by a few of its peers. As it is well-known and likely priced in by now, FY23 will probably not be smooth sailing. However, PYPL is conducting the right moves through cost-cutting measures and streamlining operations, which will position it nicely to step on the gas once e-commerce growth reaccelerates.
Expedia reports big EPS miss, but weather played a role and 2023 is off to a strong start (EXPE)
Expedia (EXPE -8%) closed out 2022 on a down note with a big EPS miss and a more modest revenue miss. With all the talk about how consumers are shifting spend away from goods and towards experiences, like travel and services, a big EPS miss took investors by surprise. Based on the size of the miss, we would have expected a bigger drop. However, when digging into it, there were some positives.
- Severe weather had a big impact on Q4 results. Recall there was Hurricane Ian in early October and the winter storms in late December. These events drove up cancelations, causing bookings and revenue to fall short of expectations despite demand otherwise accelerating through the quarter.
- Total gross bookings were down 12% vs 4Q19. However, adjusting for severe weather and FX headwinds, Expedia says gross bookings would have been above 2019 levels. Helping take the sting out of the weak Q4 result is the fact that booking trends rebounded strongly in January, so 2023 is off to a great start.
- Bookings growth has been driven by total lodging gross bookings, which were the highest Q4 on record. In January, Expedia saw a step change where its lodging gross bookings accelerated even further, growing over 20% vs 2019. Total lodging bookings for stays expected to occur in 1H23 are meaningfully outpacing 2019 and 2022 levels.
- While its consumer business has been strong, Expedia's B2B segment has grown to be one of the largest in the world. Expedia added many new partners and grew significantly in 2022 despite Asia still being greatly constrained. With the return of travel in China in 2023 and a robust pipeline of new partners around the world, Expedia expects significant growth and a great year for its B2B business.
- Another positive is that Expedia's strategy to funnel new customers toward becoming loyalty members is paying dividends. New customers in 4Q22 that became loyalty members grew 60+% relative to 4Q19 and Expedia entered 2023 with a record number of active loyalty members, which is 10% higher than any prior year. Quarterly active app users increased by 40%. This is important because loyalty members drive 2x the gross profit on repeat business as compared to non-members.
Basically, we think the market is not penalizing Expedia too harshly because much of the EPS shortfall was related to severe weather, which is out of Expedia's control. Also, the company was pretty bullish on the call in terms of 2023 bookings getting off to a much better start, especially its lodging business, and that is what investors are focusing on. The takeaway here for other online travel names reporting soon is perhaps investors need to lower their expectations for Q4 results and hang your hat on travel demand rebounding in 2023. Upcoming earnings dates include ABNB (Feb 14), BIDU (Feb 22), BKNG (Feb 23).
Affirm getting denied as dismal earnings report sheds light on significant interest rate risk (AFRM)
One week ago, shares of buy now, pay later (BNPL) company Affirm (AFRM) were soaring in the wake of a press conference from Fed Chair Powell that fueled optimism that interest rates won't rise as quickly as feared. Those gains have since been wiped out and today the stock is getting hammered following a dismal 2Q23 earnings report that illustrated just how impactful interest rates can be on its business.
- The headline numbers were weak across the board with AFRM missing top and bottom-line expectations, while Gross Merchandise Volume (GMV) of $5.7 bln fell short of the company's forecast of $5.73-$5.83 bln.
- On a growth basis, the 27% yr/yr increase in GMV was by far AFRM's weakest showing as a public company, reflecting a deceleration in loan demand due to rising rates and softening sales for discretionary goods.
- In particular, AFRM called out the electronics, home and lifestyle, and sporting goods categories as notable laggards. It's worth noting that beleaguered connected fitness company Peloton (PTON) is a still a significant partner of AFRM's and its troubles continue to weigh on its results. In Q2, the sporting goods category plunged by nearly 50% for AFRM, primarily because of PTON's ongoing struggles.
However, AFRM's issues extend well beyond the slumping sales at PTON.
- In fact, CEO Max Levin took some responsibility for the company's disappointing results, stating that a key operational misstep contributed to the poor earnings report. Specifically, he said that the company was too late with increasing prices for its merchants and customers, which prevented it from mitigating the impact of higher benchmark interest rates -- which increase the company's borrowing costs.
- Consequently, AFRM's ability to approve loans, and its ability to protect its margins, was negatively affected. For the quarter, adjusted operating margin came in at (15.5%) compared to (2.2%) in the prior quarter.
- Echoing the recent statements from Alphabet (GOOG) CEO Sundar Pichai, Mr. Levin also conceded that AFRM got ahead of itself with its hiring, anticipating a stronger economy that would support higher growth for the company. Now, like GOOG, the company is right sizing its workforce by implementing a significant round of layoffs (19% of its workforce) to better align its cost structure with the slowing growth environment.
- Investors aren't cheering this cost-cutting move, though, because AFRM's guidance -- especially for Q3 -- is so weak. For the quarter, the company is forecasting GMV growth to slow further to just 14%, while Revenue Less Transaction Costs (RLTC) is projected to decrease by 20% to about $145 mln. The pricing initiatives that AFRM took later in the year will begin to pay off eventually, but it will take some time to see those dividends.
On the positive side, AFRM's credit quality remains healthy, even as macroeconomic pressures mount. Delinquencies were inline or better than comparable periods in pre-pandemic years, and that encouraging trend continued through January. Securing funding also hasn't been an issue as it ended January with $11.3 bln in available funding capacity -- a new record high for the company. Outside of these two positives, though, good news was hard to find within this earnings report.
The Big Picture
Last Updated: 10-Feb-23 15:37 ET | Archive
Yield signs point to a dogfight
There is a famous scene in the first Top Gun movie where Maverick inverts his F-14 and gives a friendly greeting to the pilot of the Russian MiG about two meters below. That inversion -- and that greeting -- were declarations of victory over the enemy, who knew it was time to bug out and head for home.
If life could imitate art in the Treasury market, there would be a lot of victory signs because there are inversions all along the curve.
Yield Signs
The 1-yr T-bill (4.93%) yields more than the 2-yr note (4.50%); the 2-yr note yields more than the 3-yr note (4.18%); the 3-yr note yields more than the 5-yr note (3.91%); the 5-yr note yields more than the 7-yr note (3.85%); and the 7-yr note yields more than the 10-yr note (3.73%).
For good measure -- and arguably the most telltale measure for presaging a recession -- the 3-mo T-bill (4.74%) yields more -- a lot more -- than the 10-yr note (3.73%). This spread is followed closely by the Fed, which knows it has inverted ahead of prior recessions. Research done by the New York Fed has indicated as much.
The 3mo10yr spread is also looked at closely by the market, which knows its predictive power for the U.S. economy. This spread is not only piquing recession concerns, it is also giving way to criticism that the Fed is going to overtighten and induce a hard landing for the U.S. economy.
Or will it?
Don't Believe the Hype
There is no question that the financial crisis and global pandemic led to the hardest of landings for the U.S. economy. Naturally, high-yield spreads widened considerably during those periods. They did as well during the 2001 recession, although the path to the peak spread then had less economic panic in it.
We'd say that is very much the case today as well, as seen in the chart below. The high yield option-adjusted spread sits at 4.05%. That is up noticeably from the lows seen at the start of 2022 (3.05%), but it is still a long way from conveying fear about a hard landing.
Moreover, it is a considerable improvement from where things stood last July (5.99%), when the target range for the fed funds rate was 300 basis points lower (1.50-1.75%) than it is today (4.50-4.75%). At 4.05%, the high yield option-adjusted spread is effectively the same as it was in February 2020 before COVID turned the world upside down and the global economy crashed.
Things can change in a hurry, which the chart below also shows, but it is fair to say at this point that the high yield option-adjusted spread is not corroborating the recession hype that the deeply inverted yield curve is.
What It All Means
Time will be the ultimate tell in terms of how the U.S. economy evolves. It had a pretty solid fourth quarter with real GDP up 2.9% at an annualized rate. The Atlanta Fed's GDPNow model estimate for real GDP growth in the first quarter is 2.2%, or a bit below the 2.6% quarterly average for 2019 when no one was talking about a hard landing.
The inversions along the Treasury yield curve aren't giving a friendly economic signal. Then again, the high yield option-adjusted spread isn't exactly bugging out.
The mixed signaling speaks to the divided views about the degree of softness the U.S. economy will face. To be sure, it is a dogfight that is apt to keep investors on edge and the market trading in a fitful manner.
-- Patrick J. O'Hare, Briefing.com
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