Roth Capital's Michael Darda on Inflation, Labor Market, and Treasury Yields

Labor Market Concerns

• ⚠️ ADP data indicated weakness, suggesting potential concerns for the labor market, though some of it may be a head fake due to seasonal adjustments like spring break impacting jobless claims.
• 📉 Anecdotal reports suggest potential layoffs in transportation and warehousing, and the tech sector is also an area to watch.
• 📉 The primary issue may not be firings but a lack of hiring, combined with natural attrition, potentially leading to a flatline in job growth until employer confidence returns.

Federal Reserve and Interest Rates

• 📊 Secretary Bessant suggested the two-year Treasury yield indicates the Fed has room to cut rates, with the market pricing in over 100 basis points of cuts.
• 🎯 Michael Darda agrees with the market's expectation for the Fed to lower policy rates by more than 100 basis points over the next year.
• 📈 Inflation expectations on a 5-year horizon have decreased by 40 basis points from their highs, which Darda finds impressive, especially considering temporary supply-side disturbances from tariffs.

Treasury Yield Volatility

• 🎢 A recent five-day period saw the 10-year Treasury yield increase by approximately 50 basis points, accompanied by significant volatility in risk assets.
• ❓ The exact cause of this spike is unclear, but potential factors include policy choices regarding tariffs, a possible loss of market liquidity, and fears of reversing capital flows.
• 📉 With macroeconomic expectations softening, it is logical for the 10-year yield to move lower, which has been observed in recent weeks.