Risk Assets Higher, Yields Higher Across Curve (E238)

DoubleLine Cross Asset Analyst Mark Kimbrough and Fixed Income Allocation Strategist Ryan Kimmel review a week ended Oct. 31 with just two sectors, tech and consumer discretionary, holding the S&P 500 above water, and risk sectors of fixed income – high yield, bank debt and emerging markets – showing gains with investment grade sectors lower as yields shifted higher across the curve. On the macro front, the first meeting by U.S. President Trump in his second term with China President Xi, Ryan notes, “removed some of the tail risk of further trade-war escalation.” However, the week’s biggest market-moving event came out of Federal Reserve Chair Jerome Powell’s news conference Wednesday after the Federal Open Market Committee, as expected, cut the federal funds target rate 25 basis points. Powell’s flat advisory against assuming a further rate cut at the Dec. 10 FOMC meeting lowered market-priced probabilities for such a cut from as high as 95% to 60% and pushing yields up along the curve. Looking ahead to Nov. 3-7, given the idling of government statistical mills during the shutdown, Mark and Ryan have private-sector data releases for October on their menu: ISM Manufacturing (Monday); ADP private employment and ISM Services (Wednesday); University of Michigan consumer expectations survey (Friday).