Anatomy of a Treasury Rally
Solidification of the Soft Patch, More on the Messy Cleanup from Industrial Policy
Note: We will be in NYC next week, we have a few openings on Wednesday. Additionally, we changed the format of our first section this week, feedback is always welcome.
The Growth Scare Gets Scarier
This week’s note provides an analysis of the recent economic data, highlighting concerns about government spending, investment patterns, and the impact of policy changes on growth.
4Q24 GDP Revision The first revision to 4Q24 GDP highlighted a soft patch in growth due to weak capital spending and three real rate shocks since the pandemic.
Intellectual Property Products Investment There was a negative revision to intellectual property products investment, with software increasing but R&D contracting, affecting overall GDP contribution.
Tax Policy and Investment Different categories of investment (IPP, structures, equipment) have varying sensitivities to tax policy, and recent policy changes have impaired their growth.
Nvidia’s Results and Technology Exposure Nvidia’s results failed to resolve questions about the robustness of private sector investment in technology, our modest reduction in technology exposure in early February was well timed.
Federal Reserve Surveys and Policy Changes Regional Federal Reserve Bank surveys capital spending plans, employment and hours worked fell, while prices paid and received increased, we discuss the implications of policy changes on growth and investment.
Impact of Tariffs The note covers the use of tariffs to offset trading partners' barriers and our evolving perspective on corporate tax policy's role in rebuilding the manufacturing base.
Consumer Confidence Surveys The document notes that consumer confidence surveys have less impact on spending than income and are more indicative of political outcomes.
Employment and Economic Outlook We expect soft jobs and wage growth, and an increase in the unemployment rate.
10-Year Treasury Yield and Economic Soft Patch The rally in Treasuries has evolved from increased confidence in policy to a growth scare driven rally. We are gaining confidence the Fed will resume cutting rates in May.