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Another big corporate borrowing blitz to kick off September has gotten under way, but this one isn’t looking like the rest.
Instead, the flurry of new bond issues shows how the Federal Reserve’s higher interest rate environment has begun to seep in a year later, by making major companies far more hesitant to tap credit for longer stretches.
“The…
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This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.
https://www.barrons.com/articles/stock-market-movers-3fac9192
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With the threat of inflation back at the forefront for many investors, there’s one large stock-market investor positioning for it to be a decade-long phenomenon. In a note posted to the firm’s website, Chief Investment Officer William Smead of Phoenix-based Smead Capital Management, which oversees $5.83 billion in assets, said “we are loaded with inflation beneficiary stocks like oil and gas stocks and useful real estate.” The firm likes home builder D.R. Horton DHI; Simon Property Group SPG, a real estate investment trust…
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U.S. stocks finished lower Wednesday, with shares of technology companies dropping sharply, as the S&P 500 booked back-to-back losses amid a rise in Treasury yields. The Dow Jones Industrial Average DJIA fell 0.6%, while the S&P 500 SPX dropped 0.7% and the tech-heavy Nasdaq Composite COMP sank 1.1%, according to preliminary data from FactSet. Information technology was the S&P 500’s worst-performing sector on Wednesday with a loss of around 1.4%. In the U.S. bond market, the yield on the 10-year Treasury note rose for a third straight day on Wednesday to 4.289%, according to Dow Jones Market Data.
…
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The roughly $25 trillion Treasury market first began flashing this telltale sign that a U.S. recession likely lurks on the horizon almost a year ago, according to Bespoke Investment Group.
It was late October of 2022 when the 3-month Treasury yield BX:TMUBMUSD03M first eclipsed the 10-year Treasury yield BX:TMUBMUSD10Y, resulting in an “inversion” of a key part of the yield curve that’s been a reliable predictor of past recessions.
Where…
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The Federal Reserve’s inflation fight has been particularly brutal for anyone not already a U.S. homeowner before interest rates and mortgage rates rose to 15-year highs.
With mortgage rates around 7.2% to kick off the post–Labor Day period, the difference between the rates on a new 30-year home loan and on all outstanding U.S. mortgage debt (see chart) has not been so wide since the 1980s.
Glenmede, FactSet
“Generally, climbing interest rates curb demand and cause housing prices to fall,” Glenmede’s investment strategy team wrote, in a Tuesday client note, but not this time.
Instead, U.S. homes remain in critically low supply after more than a decade of underbuilding, and with most homeowners who already refinanced at low pre-pandemic rates being “reluctant to leave their homes,” wrote Jason Pride, chief of investment strategy and research, and his Glenmede team.
Also, while homes prices have come off their prepandemic highs, they still were fetching $416,000 in the second quarter, based on median sales prices, above $358,700 in the fourth quarter of 2020, according to U.S. Census and HUD data.
“Until the supply gap is filled by new construction, home prices and building activity are unlikely to decline as meaningfully as they normally would given the headwind from rising rates,” the Glenmede team said.
Read: Housing affordability is now at its worst level since 1984, Black Knight says
The Glenmede team, however, does expect more pressure on consumers in the coming months, particularly as student-loan payments resume in October and if the Fed keeps interest rates high for a while, as increasingly expected. The benchmark 10-year Treasury yield
BX:TMUBMUSD10Y,
which underpins the U.S. economy, was back on the climb at 4.26% Tuesday.
Meanwhile, shares of home-vacation rental platform Airbnb Inc.
ABNB,
rose 7.2% on Tuesday, after the Labor Day weekend, and 66.4% higher on the year so far, according to FactSet.
Don’t miss: New York City cracks down on Airbnb and other short-term-rental listings
Shares of Invitation Homes Inc.
INVH,
which grew out of the last decade’s home-loan foreclosure crisis to become a single-family-rental giant, were up 14.3% on the year, according to FactSet.
Dallas Tanner, CEO of Invitation Homes, said he expected “the rising costs and the burden of homeownership” to continue to benefit his company, in a July earnings call. The company recently bought a portfolio of about 1,900 homes and has been snapping up newly constructed homes. Companies can borrow on Wall Street at much lower rates than individuals.
Stocks closed lower Tuesday, with the Dow Jones Industrial Average
DJIA
off 0.5%, and the S&P 500 index
SPX
0.4% lower and the Nasdaq Composite Index
COMP
down 0.1%, according to FactSet.
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U.S. stocks closed lower Tuesday after the long Labor Day weekend, as bond yields and oil prices climbed. The Dow Jones Industrial Average DJIA shed about 195 points, or 0.6%, ending near 34,642, according to preliminary FactSet data. The S&P 500 index SPX dropped about 0.4% and the Nasdaq Composite Index COMP fell 0.1%. Investors returned from the long weekend in a less bullish mood on weaker economic data from China and Europe, but also with more clouds on the horizon in oil markets. Oil prices CL00 closed at the highest level since November on Tuesday, after Saudi Arabia and Russia opted to extend oil supply production…
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The 10-year Treasury bond is on track for a third year of losses in 2023, something that hasn’t happened in 250 years of U.S. history.
In short, it has never happened, say strategists at Bank of America.
The return for investors putting money in that bond
BX:TMUBMUSD10Y
stands at negative 0.3% so far in 2023, after a 17% slump in 2022 and a 3.9% drop in 2021, the bank’s strategists, led by Michael Hartnett, pointed out in a note on Friday.
Here’s a visual on that:
That reflects a “staggering 40% jump in U.S. nominal GDP growth” — factoring in growth and inflation — “since the COVID lows of 2020,” they said, providing this chart:
Bond returns have suffered this year as the Federal Reserve has continued its interest-rate-hiking campaign aimed at getting inflation under control. The “big picture in the 2020s vs. the 2010s is lower stock and bond returns, which we would expect to continue given political, geopolitical, social [and] economic trends,” said Hartnett and the team.
This year has been better for stocks
DJIA
SPX,
but the bounce since COVID pandemic restrictions began to be lifted has been very concentrated in U.S. stocks, especially the technology sector, with breadth in global markets “breathtakingly bad,” the analysts said. Breadth refers to the number of stocks actively participating in a rally.
Breadth is the worst since 2003 for the MSCI ACWI, which captures large- and midcap-stock representation across 23 developed markets and 24 emerging ones.
As for the latest weekly flows into funds, Bank of America reported that $10.3 billion went to stocks, $6.5 billion to cash and $1.7 billion to bonds, with $300 million draining from gold
GC00,
The yield on the 10-year Treasury was holding steady on Friday at 4.102% after data showed the U.S. economy generated 187,000 jobs in August, but the unemployment rate rose to 3.8% from 3.5%, and job gains were revised lower for July and June.
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With second-quarter earnings season now largely behind the market, stock investors have been focusing on the latest economic data.
They have, for the most part, been reacting positively to “bad economic news,” or any data that may point to an economic slowdown.
It’s been almost nine months since the trend emerged, as softening economic data and lower inflation may mean the Federal Reserve can stop raising interest rates, said Chris Fasciano, portfolio manager at Commonwealth Financial Network.
Traders in federal-funds futures, as of Friday, are pricing in an over 90% chance that the Fed will hold its policy interest rate unchanged at its September meeting, and a roughly 35% likelihood that the U.S. central bank will raise interest rates by 25 basis points in November.
U.S. stocks closed the week higher ahead of the Labor Day holiday weekend, after data released Friday indicated a cooling labor market, though there was speculation that a “mirage” concerning the conclusion of summertime jobs may have factored. The U.S. created 187,000 new jobs in August, while the unemployment rate jumped to 3.8% from 3.5%.
The data support the narrative of a gradual slowdown in the labor market, but there are no signs that the economy is weakening significantly, according to Richard Flax, chief investment officer at Moneyfarm.
Also read: ‘Near perfect’ jobs report has traders expecting Fed to be done hiking rates this year
“The economic data has not been bad. It is just softening. If you saw really bad economic data, that wouldn’t be taken particularly positively,” Flax said.
Meanwhile, “what we’re experiencing is a rolling recession,” said Jamie Cox, managing partner at Harris Financial Group. “Recession activity actually goes from sector to sector, but it doesn’t translate into this big broad-based decline.”
However, if investors see a significant decline in the housing and labor markets, that could change the narrative, Cox noted.
To break the cycle in which bad economic news is good news for stocks, economic data have to be much worse than now, indicating more damage from high interest rates, noted Flax.
The trend may also reverse if there is a “meaningful downgrade” of corporate earnings expectations, said Flax. “I think you need to see it when macro data translates into weakened profitability.”
Investors should also be alert of the possibility that inflation may accelerate again, according to David Merrell, founder and managing member at TBH Advisors.
Data showed that the personal consumption expenditures price index rose a mild 0.2% in July, but the yearly inflation rate crept up to 3.3% from 3%, the government said Thursday.
“Inflation overall has been trending down nicely. But if it starts to kick back up, that could mean bad news becomes bad news now,” said Merrell.
If investors start to treat bad economic news as bad news for the stock market, it could put pressure on the 2023 stock-market rally, with the S&P 500
SPX
up 17.6% since the start of the year and the Nasdaq Composite
COMP
up 34%.
In the past week, the Dow Jones Industrial Average
DJIA
climbed 1.4%, the S&P 500 advanced 2.5% and the Nasdaq gained 3.2%, according to Dow Jones Market Data. The S&P 500 posted its biggest weekly gain since the week ending June 16.
This week, investors will be expecting data on the July U.S. international trade deficit and the ISM services sector activity for August on Tuesday, weekly initial jobless benefit claims data on Thursday, and the July wholesale inventories data on Friday. They will also tune into the speeches of a number of Fed speakers, looking for clues on whether the central bank is ready to be done with its rates hikes.
Economic calendar: On this week’s economic-data docket are the Fed Beige Book, factory orders, unemployment claims and more
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After nearly two years of concerns about a recession, growing optimism about the economy is starting to filter down into Wall Street’s expectations for individual companies’ quarterly results, with analysts growing more upbeat about corporate profit in the months ahead
While expectations for those quarterly results usually trend lower as earnings season arrives, analysts over the past two months have actually nudged their profit forecasts higher for the first time in two years, according to a FactSet report released Friday….
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The 10-year Treasury bond is on track for a third year of losses in 2023, something that hasn’t happened in 250 years of U.S. history.
In short, it has never happened, say strategists at Bank of America.
The return for investors putting money in that bond
BX:TMUBMUSD10Y
stands at negative 0.3% so far in 2023, after a 17% slump in 2022 and a 3.9% drop in 2021, the bank’s strategists, led by Michael Hartnett, pointed out in a note on Friday.
Here’s a visual on that:
That reflects a “staggering 40% jump in U.S. nominal GDP growth” — factoring in growth and inflation — “since the COVID lows of 2020,” they said, providing this chart:
Bond returns have suffered this year as the Federal Reserve has continued its interest-rate-hiking campaign aimed at getting inflation under control. The “big picture in the 2020s vs. the 2010s is lower stock and bond returns, which we would expect to continue given political, geopolitical, social [and] economic trends,” said Hartnett and the team.
This year has been better for stocks
DJIA
SPX,
but the bounce since COVID pandemic restrictions began to be lifted has been very concentrated in U.S. stocks, especially the technology sector, with breadth in global markets “breathtakingly bad,” the analysts said. Breadth refers to the number of stocks actively participating in a rally.
Breadth is the worst since 2003 for the MSCI ACWI, which captures large- and midcap-stock representation across 23 developed markets and 24 emerging ones.
As for the latest weekly flows into funds, Bank of America reported that $10.3 billion went to stocks, $6.5 billion to cash and $1.7 billion to bonds, with $300 million draining from gold
GC00,
The yield on the 10-year Treasury was holding steady on Friday at 4.102% after data showed the U.S. economy generated 187,000 jobs in August, but the unemployment rate rose to 3.8% from 3.5%, and job gains were revised lower for July and June.
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U.S. lawmakers are due to get back to work Tuesday on Capitol Hill, and there are growing expectations that one fruit of their labors will be a partial government shutdown.
“My guess is that we will have a lot of screaming and shouting, and we’ll end up shutting down the government, and a lot of people will be inconvenienced or hurt as a result of doing that, but we’ll do it,” said Republican Sen. Mitt Romney of Utah in an interview with a TV station in his home state.
“And by the way, we’ll shut down government, and then we’ll open it. It’s not like that means that we win. No, no. We just shut it down to show that we’re fighting and making noise.”
Investors should view the shutdown as largely noise, according to a number of analysts in Washington, D.C., who track lawmakers’ moves for Wall Street.
“The stakes here are significantly lower than they were back in June, when we were facing default,” said Ed Mills, Washington policy analyst for Raymond James, referring to lawmakers’ efforts to reach a deal on raising the U.S. debt ceiling in order to avoid a market-shaking default.
“For the most part, this is a 1 or 2 on a scale of 1 to 10 in terms of concern,” Mills told MarketWatch, adding that a U.S. default, on the other hand, would have registered as a 10 on that scale.
There have been six government shutdowns since 1978 that lasted five days or more, and the S&P 500 stock index
SPX
gained in the four most recent shutdowns. Brian Gardner, chief Washington policy strategist at Stifel, emphasized that history in a note to clients.
“Headlines regarding a potential budget impasse will grow and there could be a whiff of panic in the air, but investors should take all of this in stride. Markets tend to ignore the impact of a government shutdown,” Gardner wrote, as he offered the chart shown below.
Stifel
From MarketWatch’s archives (September 2021): Here’s how the stock market has performed in past government shutdowns
And from January 2019: The latest government shutdown is ending, after becoming the longest on record — by a wide margin
Stifel’s Gardner said that while past shutdowns suggest that investors should not panic, there still is some damage.
“There will be extensive media coverage of closed entrances at national parks and other government facilities. Government salaries will not be paid on time which is, certainly, a hardship for some families,” he wrote. At the same time, he emphasized that “much of the country will operate as usual,” including the military
ITA
and air traffic controllers — and missed paychecks will come through once the shutdown ends.
From MarketWatch’s archives (January 2019): How furloughed federal workers can rebuild their finances after the shutdown
“From a market perspective, the biggest concern relating to a government shutdown is that it could delay official government data reports at a pivotal time for the Federal Reserve,” said BTIG’s Issac Boltansky and Isabel Bandoroff in a note.
Related: Jackson Hole recap: Fed rate hikes likely on hold for ‘several meetings’
The BTIG analysts said they expect a shutdown will occur but it should be a “nonevent for markets” overall, because it “would have no impact on debt payments and any missed activity would be settled on the other side of reopening.”
There could be a greater-than-anticipated impact on stocks
DJIA
COMP
if the shutdown lasts for a longer time than expected, and if the deal to end the shutdown features unexpectedly large cuts to spending along with significant repeals of Democrats’ Inflation Reduction Act, according to Mills, the Raymond James analyst.
“The most likely scenario is that it’s days, not weeks,” he said, regarding the length of any shutdown. He also noted it could hit consumer confidence and disrupt the initial-public-offering process for some companies.
Only one chamber of Congress is returning to Washington on Tuesday, the day following Labor Day, after an August recess — the Senate. The House of Representatives is slated to resume its work on Capitol Hill a week later, on Sept. 12.
Ahead of their returns, the Biden White House’s budget office has pushed for passage of a short-term funding measure to avoid a partial federal government shutdown on Oct. 1, when the government’s 2024 fiscal year starts.
Such a measure is known as a continuing resolution, or CR, and they’re often used as the House and Senate work to agree on a dozen appropriations bills that would fund government operations for a full fiscal year.
The debt-ceiling deal negotiated between House Speaker Kevin McCarthy and President Joe Biden set spending levels over the next two years, keeping nonmilitary spending for 2024 the same as 2023 levels. But House Republicans have adopted spending targets for the coming fiscal year at levels below the McCarthy-Biden agreement.
McCarthy has raised the idea of a short-term funding bill with his fellow Republicans.
“The thing that Kevin McCarthy is trying to tell his caucus is that we probably need to have a short-term CR, so that the House can finish its work on appropriations bills and establish the best negotiating position,” Mills said.
The House Freedom Caucus, a hardline GOP group known for causing headaches for the chamber’s leaders, has voiced concerns. It said in an Aug. 21 statement that its members want to rein in outlays and will oppose any spending measure that doesn’t include a House-passed bill focused on security at the U.S. southern border. In addition, the group said any spending measure must address the “unprecedented weaponization” of the Justice Department and the FBI, as well as end “woke policies in the Pentagon.”
The most likely path forward is the GOP-run House passes a short-term funding measure that incorporates House Freedom Caucus goals, and then there’s a showdown with the Democratic-controlled Senate over those policy riders, with a short-lived shutdown potentially taking place, Mills said.
The Raymond James analyst said the most likely deal is a budget that’s in line with what was negotiated as part of the debt-limit deal. He also expects supplemental measures that provide relief for areas hit by Hurricane Idalia and the Maui wildfires, as well as some funding for Ukraine as it continues its fight against Russia’s invasion.
“For investors, they have seen McCarthy go up to the brink, go through a tough situation and be able to pull a rabbit out of it,” Mills said, referring to his January battle to become House speaker and the spring’s debt-limit talks. And they’ve “gone through government shutdowns in the past, mostly with very minimal market reaction,” he added.
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Shares of investment giant Blackstone Inc. and vacation-home rental platform Airbnb Inc. rallied after hours on Friday after both won the nod to join the S&P 500 index
SPX
later this month.
The announcement, from S&P Dow Jones Indices, said that the change would take hold before the start of trading on Monday, Sept. 18. The move, among others announced Friday, will “ensure each index is more representative of its market-capitalization range,” according to a release.
Airbnb
ABNB,
currently has a market value of $83.98 billion, and its shares are up 64.7% so far this year. Blackstone
BX,
currently worth $129.29 billion, has seen its stock rise 43.6% year-to-date.
Shares of Airbnb and Blackstone were up 5.7% and 4.8%, respectively, after hours on Friday.
Blackstone and Airbnb will replace Lincoln National Corp.
LNC,
and Newell Brands Inc.
NWL,
in the index, S&P Dow Jones Indices said on Friday. In the process, Lincoln and Newell will join the S&P SmallCap 600.
Blackstone in July said it had reached $1 trillion in assets under management, aided by a growth trajectory that it said had outpaced its private equity rivals.
“We’ve established an unparalleled global platform of leading business lines, offering over 70 distinct investment strategies,” Chief Executive Stephen Schwarzman told analysts. “We believe our clients view us as the gold standard in alternative asset management.”
Meanwhile, Airbnb last month said that travelers were seeking longer stays and bigger properties in pricier areas, as the rebound in travel endures despite a tidal wave of inflation last year. The company’s second-quarter results and third-quarter sales forecast topped Wall Street’s estimates.
Meanwhile, S&P 500 member Deere & Co.
DE,
will replace Walgreens Boots Alliance Inc.
WBA,
in the S&P 100, S&P Dow Jones Indices said on Friday. That change also takes hold on Sept. 18. S&P Dow Jones Indices said Walgreens “is no longer representative of the megacap market space” but will stay in the S&P 500.
Shares of Deere fell 0.2% after hours. Walgreens stock was up 0.4%.
Don’t miss: Walgreens CEO Roz Brewer steps down with stock at decade-and-a-half low
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U.S. exchange-traded funds that invest in Chinese stocks notched their best day in a month after China ramped up its efforts to support the country’s flagging currency as investors’ concerns over the economic weakness persist.
The People’s Bank of China said Friday it will lower the amount of foreign-exchange deposits financial institutions are required to hold for the first time in 2023, a move seen as a bid to shore up the Chinese yuan, which has tumbled this year as the world’s second largest economy has faltered due to a property-market downturn, sluggish domestic consumption, and the ballooning local government debt pile.
The Invesco Golden Dragon China ETF
PGJ,
which tracks the American depositary shares of companies based in China, rose 3% on Friday, while the KraneShares CSI China Internet ETF
KWEB,
which offers exposure to Chinese software and information technology stocks, gained 3.5%. The iShares MSCI China ETF
MCHI
advanced nearly 2.2% and the SPDR S&P China ETF
GXC
surged 2%, according to FactSet data.
The iShares MSCI China ETF and the KraneShares CSI China Internet ETF booked their biggest daily percentage advance since August 3, according to FactSet data.
China’s central bank will cut the foreign-exchange reserve requirement ratio to 4% from 6% beginning Sept. 15. The move is expected to increase the supply of foreign currencies available in local markets, making the Chinese yuan more appealing for domestic investors.
See: China’s central bank to cut FX reserve ratio
Based on about $822 billion foreign-exchange deposits in July, the 200-basis-point cut in the reserve requirement ratio could release about $16 billion, which will improve the supply of the U.S. dollar onshore, and could move spot USDCNY lower, said strategists at Citigroup led by Johanna Chua, chief Asia economist.
“In a broader picture, this can be also seen as part the current round of accelerated policy rollout which works more directly on asset markets. If the accelerated pace [of policy rollout] continues, it may help stabilize sentiment to some extent and prevent outsized bearish moves on China risk assets including the RMB FX,” they wrote in a Friday note.
The onshore yuan
USDCNY,
weakened around 1.7% against the dollar in August, extending its losses for the year to nearly 5%, according to FactSet data. The offshore yuan
USDCNH,
was trading at 7.27 per dollar Friday afternoon.
See: Chinese Property Stocks Gain on Stimulus Measures
Friday’s change to reserve requirement ratio came a day after Chinese authorities announced that homebuyers’ minimum down payment will be reduced to 20% for first-time home purchases, and 30% for second-home purchases nationwide, according to a joint statement from the People’s Bank of China and National Administration of Financial Regulation late Thursday.
Currently, homebuyers in largest cities such as Beijing and Shanghai have a 30% down payment ratio for first homes, and 40% or more for second homes.
Separately, big banks, such as Industrial & Commercial Bank of China
601398,
and Bank of China
601988,
have said they would cut their one-year yuan deposit rate by 10 basis points to 1.55% and their two-year yuan deposit rate by 20 basis points to 1.85%. The banks also plan to cut mortgage rates to boost consumption and aid the troubled property sector.
The broader U.S. stock market finished mostly higher on Friday as traders weighed the latest jobs report to conclude the final trading day before the Labor Day holiday weekend. The S&P 500
SPX
was up 0.2%, while the Dow Jones Industrial Average
DJIA
advanced 0.3% but the Nasdaq Composite
COMP
ended nearly flat.
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A consortium of groups representing the private funds industry filed a lawsuit against the Securities and Exchange Commission Friday in an attempt to block new rules that would require private equity and hedge funds to disclose quarterly performance, fees and expenses.
The rules, adopted last week, would also ban so-called side letters, or agreements between a fund and specific investors that give them preferential treatment, unless those arrangements are made available to all investors.
Read more: SEC votes to require private equity and hedge funds to disclose performance and fees
“The SEC has overstepped its statutory authority and core legislative mandate, leaving us no choice but to litigate,” said Bryan Corbett, president and CEO of the Managed Funds Association, one of the litigants in the suit.
“The Private Fund Adviser rule will harm investors, fund managers, and markets by increasing costs, undermining competition, and reducing investment opportunities for pensions, foundations, and endowments,” he added.
The MFA was joined by several other industry groups in filing the lawsuit, including the National Association of Private Fund Managers, National Venture Capital Association, American Investment Council, Alternative Investment Management Association and the Loan Syndications & Trading Association.
An SEC spokesperson told MarketWatch that “the Commission undertakes rulemaking consistent with its authorities and laws governing the administrative process, and we will vigorously defend the challenged rule in court.”
SEC Chair Gary Gensler argued in recent speeches and statements that the new rules are necessary to protect investors, including the pension funds and endowments that have increasingly turned to alternative investments in recent years to boost returns.
He said in a May speech that private funds are of growing importance to the U.S. economy, noting that advisers report that they now manage $25 trillion in assets — up from $1 trillion in 1998 — surpassing the size of the U.S. banking sector.
“The private fund industry plays an important role in each sector of the capital markets,” he said.
“It also plays an important role for investors, such as retirement funds and endowments,” he added. “Standing behind those entities are a diverse array of teachers, firefighters, municipal workers, students, and professors.”
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The Federal Reserve can probably end its inflation fight now that the U.S. labor market is cooling after generating a historic 26 million jobs in roughly the past three years, according to BlackRock’s Rick Rieder.
“In fact, 26 million jobs is like adding an economy the size of Australia or Taiwan (including every man, woman, and child),” said Rieder, BlackRock’s chief investment officer in global fixed income, in emailed commentary following Friday’s monthly jobs report for August.
The August nonfarm-payrolls report showed the U.S. adding 187,000 jobs, slightly more than had been forecast, but also pointing to an uptick in the unemployment rate to 3.8% from 3.5%.
“Remarkably, 22 million people were hired between May 2020 and April 2022, and 11 million were added to the workforce from June 2021 to May 2023, as the economy has opened up massive amounts of roles for fulfillment,” said Rieder.
He expects wage pressures to ease, he said, and thinks the “economy may now have fulfilled many of its needs,” which should make the Fed feel more confident in “the permanence of lower levels of inflation,” so that it can slow or stop its interest-rate rises by year-end.
Hiring in the U.S. has slowed, except in education and in healthcare services, when looking at private payrolls based on a three-month moving average.
Bureau of Labor Statistics, BlackRock
The Fed has already raised interest rates in July to a 5.25%-to-5.5% range, a 22-year high, with traders in federal-funds futures on Friday pricing in only about a 7% chance of a Fed rate hike in September and favoring no hike again at the central bank’s November policy meeting.
Rieder of BlackRock, one of the world’s largest asset managers with $2.7 trillion in assets under management, said he thinks a Fed pause or outright end to rate hikes could calm markets, even if the Fed, as BlackRock expects, keeps rates high for a time.
U.S. closed mostly higher Friday ahead of the Labor Day holiday weekend, with the Dow Jones Industrial Average
DJIA
up 0.3%, the S&P 500 index
SPX
up 0.2% and the Nasdaq Composite Index
COMP
0.02% lower, according to FactSet.
The 10-year Treasury yield
BX:TMUBMUSD10Y
was at 4.173%, after hitting its highest level since 2007 in late August, adding to volatility that has wiped out earlier yearly gains in the roughly $25 trillion Treasury market.
Read on: This hadn’t happened on the U.S. Treasury market in 250 years. Now it has.
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Shares of Robinhood Markets Inc.
HOOD,
galloped 2.6% higher Friday, after the trading app disclosed that it bought back 55.3 million of its shares from the U.S. Marshal Service. The company said it paid $605.7 million for the shares, which represents 6.1% of the company’s market capitalization of $9.93 billion at Thursday’s close. The shares were originally acquired through Emergent Fidelity Technologies Ltd. by Sam Bankman-Fried, founder of failed cryptocurrency exchange FTX that collapsed last year. The shares were seized and transferred to the custody of the U.S. Robinhood’s stock has rallied 20.7% over the past three months through Thursday, while the S&P 500
SPX,
has gained 6.8%.
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The U.S. Labor Day holiday will mark another milestone in the marathon to bring workers back to the office, but it won’t be a quick fix for landlords, according to Thomas LaSalvia, head of commercial real estate economics at Moody’s Analytics.
Employers from Facebook parent Meta
META,
to Goldman Sachs
GS,
recently laid out mandates for staff to return to the office more frequently, starting this fall, including the big one — the federal government.
“A lot of companies are saying that after Labor Day, ‘We expect more out of you,” LaSalvia said, referring to days in the office. Still, office attendance, he argues, likely only stages a fuller comeback if a job or promotion is on the line.
Amazon.com Inc.’s
AMZN,
Chief Executive Andy Jassy has been trying to drive home the point by warning staff to return at least three days a week, or face the consequences.
That could prove difficult, with Friday’s U.S. jobs report for August expected to show U.S. unemployment at a scant 3.5%, near the lowest levels since the late 1960s, even if hiring has been slowing. The labor market, so far, appears unfazed by the Federal Reserve’s benchmark rate reaching a 22-year high.
It has been a different story for landlords facing a roughly 19% vacancy rate nationally and piles of debt coming due, especially for owners of older Class B and C office buildings with a bleak outlook or properties in cities with wobbling business centers.
See: San Francisco’s office market erases all gains since 2017 as prices sag nationally
As with shopping malls, LaSalvia said it’s largely a problem of oversupply, with many office properties at risk of becoming obsolete as tenants flock to better buildings and locations staging a rebirth. The trend can be traced in leasing data since 2021, with Class A properties in central business districts (blue line) showing a big advantage over less desirable buildings in the heart of cities (orange line).
Moody’s Analytics
“Little by little, we are finding the office isn’t dead,” LaSalvia said, but he also sees more promise in neighborhoods with a new purpose, those catering to hybrid work and communities that bring people together.
Another way to look at the trend is through rents. Manhattan’s Penn Station submarket, with its estimated $13 billion overhaul and neighboring Hudson Yards development, has seen asking rents jump 32% to $74.87 a square foot in the second quarter since the fourth quarter of 2019, according to Moody’s Analytics. That compares with a 2% bump in asking rents in downtown New York City to $61.39 a square foot for the same period.
The push for a return to the office also doesn’t mean a repeat of prepandemic ways. Goldman Sachs analysts estimate that part-time remote work in the U.S. has stabilized around 20%-25%, in a late August report, but that’s still up from 2.6% before the 2020 lockdowns.
Furthermore, the persistence of remote work will likely add another 171 million square feet of vacant U.S. office space through 2029, a period that also will see tenants’ long-term leases expire and many companies opting for less space. The additional vacancies would roughly translate to 57% of Los Angeles roughly 300 million square feet of office space sitting empty.
“The fundamental reason why we had offices in the first place have not completely disintegrated,” LaSalvia said. “But for some of those Class B and C offices, the writing was on the wall before the pandemic.”
U.S. stocks were mixed Thursday, but headed for losses in a tough August for stocks, with the S&P 500 index
SPX
off about 1.5% for the month, the Dow Jones Industrial Average
DJIA
2.1% lower and the Nasdaq Composite
COMP
down 2% in August, according to FactSet.
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Senate Minority Leader Mitch McConnell froze for about 30 seconds Wednesday during an event with reporters in Kentucky, with the incident coming a month after a similar freeze-up.
Footage in the social-media post below from a local TV station, WLWT, shows the 81-year-old Kentucky Republican freezing up after a question about seeking re-election.
Additional video shows McConnell getting help from an aide with responding to other questions and then being led away.
A spokesman for the 81-year-old Kentucky Republican said the senator “felt momentarily lightheaded and paused during his press conference today,” according to multiple published reports.
“While he feels fine, as a prudential measure, the Leader will be consulting a physician prior to his next event,” his office also said.
In a statement after last month’s incident, a spokesman said McConnell plans to serve the rest of the 118th Congress as the GOP leader, but the statement didn’t address his plans for the next Congress, which starts in January 2025.
If McConnell leaves the post of Senate Republican leader, three GOP senators are viewed as in the running to succeed him: John Barrasso of Wyoming, John Cornyn of Texas and John Thune of South Dakota.
McConnell’s current term as a U.S. senator runs through 2026, and Kentucky’s Democratic governor would be required to pick a Republican to replace him if he steps down early.
A number of political figures have drawn attention this year due to their advanced age or health problems, including President Joe Biden, 80; Democratic Sen. Dianne Feinstein of California, 90; and Democratic Sen. John Fetterman of Pennsylvania, 54.
Biden told reporters on Wednesday afternoon that he had heard about McConnell’s situation, and he planned to reach out to the senator, adding that they are friends even though they have disagreements politically.
“I’m going to try to get in touch with him later this afternoon,” the president said.
The Senate’s median age is 65.3 years old, up from 64.8 in the 117th Congress and 63.6 in the 116th, according to a Pew Research Center analysis from January.
On Tuesday, House Majority Leader Steve Scalise, a Louisiana Republican, said he has been “diagnosed with Multiple Myeloma, a very treatable blood cancer.” Scalise, 57, said he has started treatment, which will continue for the next several months, and he expects to work while getting treated and intends to return to Washington, D.C.
See: Biden’s age is figuring ‘prominently’ in the 2024 White House race — but here’s what the pundits could be getting wrong
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Fed funds futures traders continued to boost their expectations for no further rate hikes by the Federal Reserve this year, after Wednesday’s data on private-sector payrolls and revised second-quarter GDP. The chance of no action by the Fed in September was seen at 90.5%, up from 86% a day ago, according to the CME Fed Watch Tool. Traders see a 57% and 55.5% likelihood of no action respectively in November or December, which would leave the fed funds rate at between 5.25%-5.5%.
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