Director of Real-Time Economics
Ryan Sweet is director of real-time economics at Moody's Analytics. He is also editor-in-chief of Economy.com, to which he regularly contributes, and a member of the US macroeconomics team in West Chester, PA. He is among the most accurate high-frequency forecasters of the US economy, according to MarketWatch. He is also an adjunct professor in the Economics and Finance Department at West Chester University of Pennsylvania. He has a master's degree in economics from the University of Delaware and a bachelor's degree in economics from Washington College.
Lately, financial markets have grudgingly withstood the broad imposition of tariffs on steel and aluminum. Not even the resignation of the highly respected Gary Cohn was capable of triggering a jarring sell-off of equities. Markets took some comfort from President Trump's indication that countries might be granted exemptions from the tariffs if they resolve issues that led to the imposition of tariffs.
February was a stormy month for financial markets. Worse yet, March got off to a horrible start in response to President Trump's intention to impose import tariffs of 10% on aluminum and 25% on steel despite how costlier aluminum and steel will diminish the global competitiveness of those U.S. manufacturers using these materials. Remember, after having incurred back-to-back monthly setbacks in January and February, auto sales were expected to decline in 2018 prior to the statement on tariffs.
Partly as a means of offsetting the loss of business activity to deleveraging by households, businesses, as well as state and local governments, the federal government's share of the U.S.' broadest estimate of public and private nonfinancial-sector debt has soared from year-end 2007's 18% to the 34% of 2017's third quarter. The latter share is the highest since 1960's third quarter.
Corporate bond yield spreads have been relatively steady throughout recent equity market tumult. Expectations of a declining high-yield default rate into early 2019 have anchored corporate yield spreads.
Thus far, the corporate credit market has been relatively steady amid equity market turmoil. Corporate credit's comparative calm stems from expectations of continued profit growth that underpins a still likely slide by the high-yield default rate. The record shows that 90% of the year-to-year declines by the default rate were joined by year-to-year growth for the market value of U.S. common stock.
It has been a volatile week for financial markets. After shrugging off an earlier ascent by the 10-year Treasury yield from year-end 2017's 2.41% to January 26's 2.66% and advancing by 7.1%, the market value of U.S. common stock has since sunk by 1.6% in reaction to a climb by the 10-year Treasury yield to 2.77%. The deeper post-January 26 drop of 3.7% by the interest-sensitive PHLX index of housing-sector share prices underscores the importance of higher Treasury bond yields to the latest retreat by equities. Earlier, or from year-end 2017 through January 26, the index of housing sector share prices was up by 4.9%, which trailed the accompanying advance by the overall equity market.
Some predicted that the loss of the full deductibility of business interest expense would weigh heavily on the issuance of dollar-denominated high-yield bonds. However, corporate bond issuance has exceeded expectations thus far in 2018.
Mark Zandi, Chief Economist, and Ryan Sweet, Director of Real Time Economics, share Moody’s Analytics forecast and discuss the factors that could impact the economy’s performance.
Earnings-sensitive securities have thrived thus far in 2018. Not only was the market value of U.S. common stock recently up by 4.5% since year-end 2017, but a composite high-yield bond spread narrowed by 23 basis points to 336 bp. The latter brings attention to how the accompanying composite speculative-grade bond yield fell from year-end 2017's 5.82% to a recent 5.72% despite the 5-year Treasury yield's increase from 2.21% to 2.39%, respectively.
Corporate bonds and equities got out of the gate quickly in 2018. Though benchmark interest rates are likely to climb higher, the combination of corporate earnings growth and a benign outlook for corporate defaults should be enough to prevent a deep and extended slide by share prices. Except for late 1987's stock market crash, the historical record shows that since 1982, interest-rate inspired declines by the broad equity indices have been relatively brief and shallow.
In this webinar replay, Mark Zandi and the Moody’s Analytics team examine the economic impact on the national and regional economy.
In this webinar replay, Mark Zandi and the Moody’s Analytics team examine the economic impact on the national and regional economy, including the effect on GDP, corporate profits, gas prices, as well as property damage estimates for infrastructure, real estate and vehicles.
How US policymakers respond to pressing fiscal challenges could have major implications for financial market conditions. These challenges, coupled with the debate surrounding the Fed's balance sheet and geopolitical issues, are of concern for those with exposure to market risk.
Mark Zandi and Ryan Sweet discuss the outcome of the U.S. presidential election, what must be done early in the new president’s term to help the economy, and the implication of the election outcome on the fiscal outlook and growth.