DoubleLine Minutes

DoubleLine Portfolio Manager Jeff Mayberry and Analyst Mark Kimbrough review a holiday-shortened week (Sept. 8-11) that delivered a mixed bag for markets: S&P 500 stocks were mostly down but not by much (00:53); bonds had an exciting week as the U.S. Treasury Department’s buyback exceeded its initially discussed goal of $4 billion (3:05); and commodities climbed on higher energy prices, including record diesel prices at the pump (6:09). Over in Macro Land, the main attraction was Inflation Week (7:34). Messrs. Mayberry and Kimbrough break down new prints for the Producer Price Index (8:55) and Consumer Price Index (11:02), which contained no surprises but boosted the odds of a hike at the FOMC meeting, next week’s main event (16:15).

Portfolio Manager Jeff Mayberry and Asset Allocation Strategist Ryan Kimmel on Sept. 4 survey a week ended with a flat S&P 500 (0.42) and, despite a slight rise in yields, a flat return on the Bloomberg Aggregate (3:02). Energy prices rose (6:10) on persistent hostilities in the Middle East. Their macro wrap-up (7:51) includes Friday’s report of stronger-than-expected payroll growth in August. “The market doesn’t seem to care about the labor market. By any stretch of the imagination, we’re at full employment,” Jeff Mayberry notes. “It’s not the jobs number or the unemployment rate that people worry about. It’s inflation.” The Labor Day-shortened week ahead will provide some of those answers with the August PPI on Thursday and CPI on Friday. “I’m going to be focused on Core CPI,” Ryan Kimmel says. “Waller basically said how he’s going to vote will depend on that number. Pretty remarkable, putting it all on one data print.”

Fed Chairman Kevin Warsh burnished his tainted inflation-fighting reputation at Jackson Hole, Friday, ending an Aug. 24-28 week, note DoubleLine’s Jeff Mayberry and Mark Kimbrough, characterized by a positive S&P 500 (0:59) but with most sectors in the red. On the back of Warsh’s Jackson Hole speech, they note the yield curve flattened (3:29) and fed funds futures repriced the odds of a rate hike on Sept. 16 to 60% from 35%. Among the week’s macro prints (9:10), Mark Kimbrough notes Personal Income in July rose 0.4%. “0.4% is usually the bogey I’m looking for on a monthly basis; that annualizes to 4.9%. In a world of 2% inflation, that looks good. But we’re living in a world of elevated inflation.” Looking ahead to Aug. 31-Sept. 4, Jeff and Mark will be especially on watch for labor stats on Friday, including August nonfarm payrolls.

After surveying a softening S&P 500 on weaker tech (0:26) for the week ended Aug. 21, DoubleLine Portfolio Manager Eric Dhall and Analyst Mark Kimbrough scrutinize bond pricing (1:53) that appeared less than impressed with Treasury Secretary Scott Besssent’s interventionism. Treasury’s limited buying at the long end, Eric Dhall remarks, stirred up volatility at that long end of the curve; nonetheless, term premia on government debt ended the week higher from shorter to longer tenors. That market verdict, coinciding with the national debt topping $40 trillion, he notes, left some investors spooked. Commodities (4:57) rose, led by energy, while gold and bitcoin rallied and the dollar weakened, moves which Eric attributes to the federal debt news and the worrisome Treasury intervention. Scrutinizing the week’s macro tea leaves (7:36), Mark Kimbrough sifts out an unusually strong “select-tech” contribution to industrial production, a positive but still-to-be-confirmed gain in services and manufacturing hiring, and signs in the FOMC minutes that members are continuing to “sit on their hands” with respect to the federal funds target rate. For Aug. 24-28, Eric and Mark will be especially on the lookout for PCE and personal income prints on Wednesday and whether Fed Chairman Kevin Warsh serves up something concrete or “gibberish” at his Jackson Hole speech scheduled 10 am ET Friday.

DoubleLine Portfolio Manager Jeff Mayberry and Asset Allocation Strategist Ryan Kimmel Aug. 14 review improving stock-market breadth (0: 43) underneath a flat S&P 500. Higher risk premia priced into the long end of the Treasury curve (4:06) amid concerning acceleration of the U.S. deficit (6:47) and benign news on the inflation front (9:52). They also observe YTD returns making the case for diversification benefit of commodities (8:30). In the absence of fist-tier economic data for Aug. 17-21, Jeff and Ryan expect a week of August doldrums, barring an outbreak from never-absent headline risk.

DoubleLine Portfolio Manager Eric Dhall and Asset Allocation Strategist Ryan Kimmel survey markets Aug. 7, noting an earnings-driven rally in equities (0:44) apart from energy, real estate and consumer staples. Positive returns posted across investment and below-investment grade fixed income (3:31) on easing rate worries. Currency markets (6:41) witnessed coordinated U.S.-Japan intervention to stave off yen weakness. The action was aided by a weak dollar. On the macro front (9:21), softer-than-expected July payrolls led the week’s news. Ryan also took note of a flagging labor participation rate. Looking ahead to Aug. 10-14, Eric and Ryan will be focused on the July CPI and PPI prints, particularly Core CPI, with any print above the lower end of expectations likely to add pressure on the Federal Reserve to raise official short-term interest rates.

Beneath a slight gain for July 27-31 in broad indexes (00:37), stock market leadership continues to churn, note DoubleLine Portfolio Manager Eric Dhall and Allocation Strategist Ryan Kimmel. In fixed income (6:58), a bearish steepener took hold as markets perceived Fed Chairman Kevin Warsh striking a dovish stance. Fed funds futures adjusted to price in a two-thirds probability of a fed fund rate hike at the Sept. 16 meeting of the Federal Open Market Committee. Warsh’s July 27 news conference (15:48) became the main event for the week’s market news. “He was channeling his inner Alan Greenspan, rest in peace, because he was saying a whole lot, but you couldn’t comprehend any narrative there other than he was tap-dancing around the reporters’ questions,” Eric Dhall comments. Notwithstanding the fancy footwork, Warsh let slip enough, including his discounting of core PCE as the Fed’s preferred inflation measure, Ryan Kimmel says, for the markets to detect a dovish posture.

For the week ended July 24, DoubleLine Portfolio Manager Eric Dhall and Analyst Mark Kimbrough see a lot of red on the ticker tape (00:20), with the S&P 500 down on the week amid the AI skepticism that the market is kind of dishing out right now. It was also a red week for fixed income (3:20) as the U.S. interest rate curve sold off, but commodities (4:48) benefited from a potential second energy shock. While it was a light week in Macro Land, Eric and Mark discuss the 186,000 jobless claims (8:17), the lowest print since 1969, and positive-territory manufacturing and service PMI numbers (10:29), which could have gotten a boost from the World Cup and celebration of the U.S. semiquincentennial. Next week (12:35) will bring lots of macro news, including home prices, a PCE print and a Q2 GDP estimate, but the big event will be the FOMC meeting, the second under new Fed Chairman Kevin Warsh.

For the week ended July 17, DoubleLine Portfolio Manager Eric Dhall and Macro Asset Allocation Strategist Ryan Kimmel delve into rotating stock leadership amid a route in chipmakers (0:45), a clip-the-coupon bond world (4:47) and stronger commodities (5:55) as war drums spiked energy prices. Notwithstanding losses in erstwhile tech leadership, Ryan Kimmel sees positive signals for the U.S. economy in the form of broadening gains in equities, stellar bank earnings and robust corporate lending. Copper, an economic bellwether, while weak on the week, still is holding up for the month. Topping the week’s macro news (10:23) was outright month-over-month deflation in the June headline CPI and even 2 basis points of deflation in Core CPI. “Generally speaking, it was a positive for the Fed and abated inflation fears from the prior months,” Ryan notes. “Heading into this print, the market was expecting almost a 50% probability of a July 29 rate hike. Following the report, we saw that number drop to 10%.” Fed funds futures are still pricing in a single 25-basis point rate hike by year end. “In my opinion, that’s hedging,” Eric Dhall opines. “It’s tough to see the Fed hiking based on the last CPI, but you just don’t know. If WTI prices were driven again to the $100 level, hawks could be emboldened, but Chairman Warsh might throw cold water on that. I don’t think he thinks raising rates in an energy-shock inflation cycle makes sense.”

DoubleLine Portfolio Manager Eric Dhall and Analyst Mark Kimbrough review the second quarter with stocks (1:44) led by a 43%+ gain in tech, high-grade bonds (6:07) grinding out the carry despite selling in the belly of the yield curve and commodities (9:53) giving back part of their still-healthy YTD gains. The U.S. dollar (12:28), Eric notes, was very resilient on the Federal Reserve’s commitment to defeat inflation. In a tour of the last two weeks’ macro news (13:25), Mark finds a mostly stable labor market based on his readings of the June U-3 unemployment report, the latest JOLTS report and the update to weekly jobless claims data. Looking to the week ahead, the star prints of course will be the June CPI (Tuesday) and PPI (Wednesday) reports. Mark also will be eyeballing the first corporate earnings results for the quarter.