Silent Nights, Strong Numbers: GDP Pops, S&P Hits Highs Trading during the Christmas holiday week was subdued, with staffing shortages adding to the muted tone. Still, a few key data releases mana...
Silent Nights, Strong Numbers: GDP Pops, S&P Hits Highs
Trading during the Christmas holiday week was subdued, with staffing shortages adding to the muted tone. Still, a few key data releases managed to capture participants’ attention.
On Tuesday, Q3 GDP surprised to the upside, coming in at 4.3%, a full percentage point above both the previous quarter and recent estimates, resulting in the strongest quarterly reading in two years. Treasuries briefly tested the 4.20% yield level, the upper end of the recent range, before recovering and finishing the day nearly unchanged.
On Christmas Eve, initial jobless claims for the week ending December 20 showed a more resilient labor market than prior NFP and unemployment data suggested. Claims fell to 214k, with the four-week average at 216k. While not overtly hawkish, the absence of clear weakness gives the Fed reason to remain cautious about additional rate cuts at the January meeting.
Rates held in a tight range last week, while equities climbed, with the S&P 500 setting a fresh record and edging closer to our 7,000 year-end target. This momentum hints at the start of a Santa rally, potentially closing out the year and ushering in the new one on a positive note.
Looking ahead, this week will interrupted by the New Year holiday, with markets closing early Wednesday. On Tuesday, the release of FOMC minutes should provide insight into the tone of debate before December’s 25 bp cut. We’ll be on the lookout for clues on hawkish dissents from Goolsbee and Schmid.
Current expectations point to a pause at the January 29 meeting, with only a 15% probability of another cut priced in. Recent comments from Chair Powell suggest the Fed wants to maintain flexibility, especially after signs of labor market stabilization in the latest data following the government shutdown.
The Fed’s struggle to balance its dual mandates - price stability and maximum employment - remains far from resolved. Earlier concerns about goods inflation tied to President Trump’s tariff policies largely failed to materialize, prompting a policy pivot in September toward rate cuts aimed at supporting a cooling labor market. Yet the debate is ongoing, as persistent inflation risks continue to fuel hawkish voices within the FOMC.
From the Municipal Desk (with contributions from Ryan Riffe):
As expected, the municipal market remained quiet during the Christmas holiday week. By Friday's end, the MMD scale finished unchanged, with new issue supply sitting at virtually zero. Secondary bid-wanted activity continued to be tightly bid as both ETF and funds each brought in more than $600 million of inflows. We look ahead to another short week of trading to round out the year, where trade volume should be light, and price levels look to remain strong. Happy New Year to all from the SWBC Trading Desk!
30-Day Visible Supply @ $5.3 Billion
2-YR Ratio @ 68%
3-YR Ratio @ 67%
5-YR Ratio @ 65%
10-YR Ratio @ 66%
30-YR Ratio @ 88%
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield. • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. • The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. • The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September. • The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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