A Fête Sans Tech

[music] >> Good morning, everyone. Welcome to this week's episode of Double Line Minutes. I'm Eric Dahl, here with Mark Kimbrough. >> Hey, hey. >> It's shortly after 10:00 a.m. Pacific, Friday, October 9th, 2026. Hopefully, all the listeners are getting uh a good taste of fall. We here in Southern California are looking forward to fall. It's been a long summer, but it looks like uh fall is about to begin. So, with that >> Relief on the horizon. >> Yes. Relief on the horizon. With that, we will jump into where we are and what's transpired this week in the global markets. The US equity market had a positive week, up a little over 1% on the week. And, you know, it was pretty broad-based uh across the board when you look at it. The best-performing sector was the energy sector, up 4%, but consumer staples was up 3 and 1/2, consumer discretionary up 2 and 1/2, healthcare up 2.8%. The utility sector, up 3.9%. And the market's darling, the technology sector, was actually down 71 basis points on the week. >> An up market week with a down tech sector. >> Yeah, shocker. Pretty interesting reversal there. I mean, the US equity market is still up resoundingly on the year, up 15%, and the tech sector's up uh a weak 38%. So, you know, I I I wouldn't really say we had a large reversal here, just a minor shift in tone for the week. When you look at the Russell 1000 total return, it's up 1% on the week. The Russell 2000's actually down 90 basis points on the week. When you look at the Russell 1000 growth, up 71 basis points, the Russell 1000 value, up 1.6% and the S&P 500 500 equally weighted index which equally weights each sec each stock in the S&P rather than cap weighting each stock is up 1.6%. So, definitely a bit of a rotation there. We'll see if it holds. We at DoubleLine have been um big believers in the idea of diversifying your equity exposure given the concentration in US equities. One interesting observation I had on the week was the percentage weight of the stock Nvidia in the S&P is actually it's actually greater than the percentage weight of Nvidia in the Nasdaq 100. I just thought that was a pretty interesting thing to see, you know, like a tech-focused index would have a a slightly lower weight to the stock than the S&P 500. But >> you mentioned this week you definitely caught the ear, right? It was that's a little bit of a shock to hear that. I was definitely not aware. >> Yeah. Yeah, definitely a bit of a interesting development there. When we look at the global bond market, we got a little bit of a relief rally. I'm going to say a little relief rally this week, you know, not not a huge rally. For example, looking at interest rates, uh the 30-year US Treasury is at 5.6%. The Friday last week is 5.62%. The 10-year US Treasury currently trading at five and a quarter. It was at 5.27 uh last Friday. So, a little bit of a rally though intra week um we did see rates sell off earlier in the week. So, we'll call it a uh net positive as in investors were enticed to purchase Treasuries uh given the the relatively attractive valuations. I mean, these are these These levels of yields investors haven't seen in 20 years. So, definitely uh uh waking some bond traders and investors up those uh relatively attractive yields. Now, when you look at what does that mean for the bond market? The US aggregate was up uh 37 basis points on the week. Mortgage-backed securities up 37 basis points. Investment-grade corporate bonds up a a half a percent. High-yield corporate bonds up about a quarter percent. And emerging market bonds up over 60 basis points. So, positive across the board there. The bank loan sector was slightly down, but you know, we're we're looking at a proxy. So, you could just call it flat. Roughly speaking. So, a little bit of respite in the fixed income market. We'll see how that plays out over the course of the the rest of the year. We're kind of on the home stretch here in fall heading uh towards Halloween, then Thanksgiving, then it'll be Christmas, then the year will be over. So, you you really have to kind of buckle up for the last quarter. When you look at the global commodity markets, this week was uh positive at the headline index level. The BCOM was up about 1 and a quarter percent. That was driven by energy up over 3% as once again headlines coming out of the Middle East and the conflict there uh have escalated as um you know, I saw an interesting piece the other the other week. And you know, this was a piece of research and it was trying to analyze the kind of the hand of Iran from the perspective of an options trader. Just trying to thinking about it. And you can think about, you know, their hand so to speak as, you know, having a very large time decay. Meaning, the the value of their optionality is decreasing as the midterm elections approach. And the reasoning of this research piece was they were likely to escalate given that fact. That the value of their ability disrupt the the oil markets and disrupt the US election was decreasing. So and I mean you've seen that this week. You've seen a disruption occur. You've seen the conflict escalate. So maybe that's one way to look at the the the increased conflict this week and maybe or portends more conflict conflict in the weeks ahead. We'll have to wait and see but the tail of the ticker tape is energy markets were up on attacks in the Middle East. Currently we're looking at a little bit of a drop today but Brent crude's at 104 and WTI crude's at 91. When we look at the other parts of the commodity market, the industrial metal sector was up 1%. The precious metal sector was up 1 and 1/4%. And the agricultural sector was down about a percent. One thing I will note that is weighing on diesel prices, not just crude oil, is there's a hurricane heading up towards the Gulf coast right now. So, you know, our thoughts are with everybody in that part of the the world. You know, get your your storm shields up. Prepare for that because it looks like it's going to make landfall right in the middle of the the Gulf coast so that could that could cause some outages. We'll see what happens. And you know, gold gold's currently trading about 40 $200 an ounce. So, a little bit of a rally this week. I think every time gold makes a retracement back towards that 4,000 level, um buyers start to get interested again especially given the global rates backdrop and the the debt glut that the world seems to be drowning in. So, it's a kind of interesting dynamic to keep an eye on. Last but not least, we'll look at the currency market. The The has shown resilience currently at 102 on the Dixie, which you know, makes sense because the Dixie, when you think about the the the Dixie index, the dollar index. You know, this is an index of developed market currencies, right? So, when you look at it on a on a percentage basis, the euro is 58%, the yen is 14%, the the British pound is 12%, the Canadian dollar is 9%. So, I mean, you have to take that into context. You know, the dollar can look strong, but it's it's looking strong relative to the euro, which has this kind of French oats problem. If people haven't been following the global bond market, the the French 10-year bond has been trading at the highest levels it's seen in in over a decade, and it's it's creating fears of a potential um euro crisis brewing in the future. You know, one of the candidates for election over there, the socialist guy, just says he wants to burn the bonds, which obviously could precipitate another euro crisis, but we're we're not going to get overly fearful about that. That's just campaign rhetoric, but it is weighing heavily on the French bond market right now. And uh so, with all that said, the US dollar has been strong, but I don't know if that's necessarily an indication that the dollar is a is a great uh bastion of value, or that, you know, the things it's being compared to are relatively weak. So, with that, we'll kind of finish off with the Bitcoin, which is currently trading at 82,600 a Bitcoin, down about 2% on the week, which we'll call flat for Bitcoin. Uh what do you think, Mr. Kimble? >> I mean, I think it was a nice week. We're going to actually wrap up all three sectors in the positive, and then I'm just I'm just going to put a feather in the cap there, just be like, that's that's called a win. It's it's nice to have a, you know, a week where everything's running the same direction. I know we've experienced a lot of pain in the bond market in recent weeks yeah, throughout the year, but uh you know what, it's nice to at least catch a breather here and people just reassess. >> Catching a breather, I think you're right. People are reassessing. Well, you know, when yields get to 20-year highs, people start to think, you know, maybe it's time to buy. So, maybe that's what's driving this right now. >> Yeah. And we'll see how that continues to, you know, uh to to develop. We'll definitely keep everyone apprised here. But, uh should we we jump into the eco data on our super light week? >> Yeah, this is a heavy week, you know, this is not a This was not a leg day week, you know, for macro data. That's for sure. >> No, this was this was going in getting yourself a smoothie and maybe uh taking a trip to the sauna. Um So, let's let's jump right in here. We got Monday, we had ISM services, uh the PMI data. This was uh data for the month of September. Uh it printed at 54.9. Uh basically right in line with estimates. Uh slight tick down from the prior of 55.4. Uh just look at a high level, if it was a busier week, I wouldn't dive into this as much and just say it's a broadly strong report. Uh but, I'll dig in a little bit here, just give you the the new orders on the demand front. Uh ticked down, but still a very robust 59.8. Again, these are all diffusion metrics. So, uh north of 50 is expansionary territory. Uh we have backlog of orders hit 56.6. That's now at the highest level it's been since uh July of 2022. Uh on the consumption front, we have activity, basically that what the product what they're producing in the services sector. Uh that's a firm expansionary print of 56.5, even though it pulled back somewhat strongly from last month. And uh employment came through. Uh actually it ticked up 2.3 points to 50.1. So, touched expansion territory uh for the first time in the last 3 months. And this was actually noted to be in line. The reason I just mentioned those other categories is they attributed uh within this report the rise in employment to uh the pick up in backlogs that's going alongside uh this expanding production. So, they're they're ramping up production over in the services sector and their backlogs are expanding at a, you know, the fastest pace or the broadest pace since uh 2022. So, they're needing to to up a little extra help here. Um and we'll see how that develops in the months to come. Uh, but the the hair on the report is is not surprising to anybody. It's the prices metric. This pushed up to 74.0. That is a new local high, highest since July of 2022. Um, and uh, I mean, that that is, you know, we'll get into inflation week next week. Not going to front run that section now, but uh, yeah, that that's the big hair in the report. Everything else broadly looks positive on the PMI uh, report this week. This month. Uh, moving forward to Wednesday, we got FOMC meeting minutes uh, for our recent uh, you know, rate hike that we just got. Uh, let me give you I want to give you a couple quotes here. You know, we like to pour through these. You know, you're trying to read the tea leaves a little bit so you can get a little extra color uh, from what has become very brief uh, you know, press conferences and uh, statements that we've gotten. Uh, so let me give you a quote here. This is quote, "Many participants emphasized that a higher path for the target range would be prudent on risk management grounds, providing insurance against inflation remaining persistently above target due to stronger than expected expected demand or further adverse supply shocks. A number of participants viewed a higher path for the target range as necessary based on their modal outlooks rather than on risk management grounds." End quote. So, to kind of summarize that, there's a lot of words that are used in these minutes that they're very specific about it. I think they're, you know, they're they're trying to be direct. They use things like, well, maybe not direct, but they use words like many and some, a majority, few. And so, parsing through these and trying to, you know, read the tea leaves here, they mention that many participants were choosing this on a risk management basis. Basically saying that maybe their uh, outlook on inflation in the future was for it to come down, but they believe that it's worthy to maybe give us a little bit of a uh, risk management hike in the event that, you know, we have further supply shocks or we have, you know, further pickups in demand, things related to AI. So, uh, you know, that that's what it sounded like a majority of participants in this cohort were were discussing. And then it mentioned that a a and it says that after many, so it would imply less than many uh, participants viewed a higher path was based on their modal outlooks effectively saying that they see that the current stance of the Fed is not restrictive that that maybe more work is needed to be done and they believe that they're given their outlook on inflation we need more hikes and you know later on in the same paragraph give you one last sentence here it did say that several quote several participants stated that they viewed the current policy rate as not restrictive or only mildly restrictive. So that gives you you know risk management maybe is the top reason for why people made this hike but it does seem broadly that you know more hikes are expected. I mean they they did later on say that you know I know they're not trying to do forward guidance but they're basically saying that majority participants do see it to be appropriate to hike rates at least one more time by year end. So that that gives you the FOMC meeting minutes. I mean that you know work is is right in line with what they're doing now. We'll touch base on that briefly in a little bit but uh You know let me you know what the rest of the week is actually just super light. This is usually lower tier data I wouldn't dig in too much. You know you have high frequency labor data on Thursday the initial jobless claims and continuing claims for the weeks ending October 3rd and September 26th. Steady as she drifts we have the initial claims at 197k right around that 200k bogey continuing claims came in at 1.716 million so right at that 1.7 million kind of watermark we've been sitting at kind of treading water. And today we got U Mich sentiment data and inflation expectations. Uh look the headline number I don't dig too deep into this stuff but the headline number did tick down on the back of deterioration in assessment of current conditions did have a slight improvement in expectations month over month but what I find to be more interesting data points here is their inflation expectation metrics which both did tick up their one year inflation expectation ticked up from 4.6 to 4.7% while their 5 to 10 year inflation expectations ticked up from 3.4 to 3.5. Not reading into those absolute numbers being you know you ask your average person on the street what inflation's going to be, they're going to be wrong just like everyone else. It's a very hard number to predict. But you know the wisdom of crowds we're getting some input into what the direction of how consumers are feeling inflation is moving and that direction is uh up not not in a positive direction in terms of the Fed's goals at least. And that wraps up our our very robust week of economic data here. >> I think light week. Labor market's still holding in there. Um you know the ISM services came in positive you know above in a growth territory. The people are upset because prices are high and I mean I think one just anecdote in that in that regard I sent around some research to the team. When you look at cumulative inflation rates, okay, uh over six-year periods since 1984, all right? So about the last 40 years. What you see is the the 2020 to 2026 period is actually the highest cumulative inflation rate of of any six-year period in that cohort close to 30% and I think I think that's that's what's driving some of that consternation and disgruntleness in the sentiment surveys and the expectations is yeah I mean the economist can say all day to to a consumer on the street or to a to a regular person oh the CPI's mid-3% and it's heading heading lower we think it's going to head lower. But that person on the street is going to open their wallet and and the dollar bill they had in there I mean it's effectively shrunk you know it's only worth 70 cents now basically and that's the problem is it compounds out it's compound interest. So that's really in my opinion what's driving those sentiment indicators. >> And yeah it's like if given those numbers you're stating you needed to have a 30% increase in your wages just to keep even. And you know I I I know that there has been wage growth going on during this period during this inflation bout, but it is not been I mean it's people have been treading water at best. So it's yeah, that's the cumulative effects of that truly are weighing on sentiment. I know people keep spending, but it's it's still it's a lot to take. >> So when you look at the interest rate probabilities priced in the market right now, they're pretty hawkish. I mean there's another cut expect another hike expected before year end and there's three hikes expected by next year, mid next year, let's call it. By July of next year. So, you know, obviously there's going to be a lot of data between now and then. A resolution of the Iran conflict could over six-month period lead to, you know, a very a much more sanguine inflation outlook. But you still have the tailwinds of the AI growth story and other things, the the resilience of the US consumer. So, that's what the market's pricing in right now, but a lot can change between now and then. Realistically on the October 28th Fed meeting, there doesn't seem to be a strong chance of a hike. The probability is currently at 20%, so let's say it's not likely, but you never know what's going to happen. Um with that we can kind of shift it forward to next week, which is a much more data-rich week. >> So inflation week. >> Why don't you run over the radar screen what to keep an eye out? >> You know, so yeah, there's a lot here. I'm not going to cover it all today. I'm just going to give you the high points. We'll start on Wednesday. We get CPI for the month of September. Headline is estimated to come in a little hot at 0.6%. This would bring the year-over-year number up from 3.4 to 3.6% if that estimate comes to be. Core CPI also, while the month-over-month number is estimated to come in at 0.2, base effects have this nudging up from 2.4 to 2.5% on the year-over-year basis. We also get more inflation data on Thursday. We get PPI data for the month of September. Final demand estimated to come in a little hot at 0.5%. The core number at 0.3. I don't have that core of core number estimate this morning, but year-over-year numbers estimated to actually tick down for both PPI measures and take no comfort in that tick down from very high levels to still high levels. It's estimated to go from 5.4% year-over-year at a headline level down to 5.3 and the core number to tick down from 4.6 to 4.4. And on Friday we get import prices, the tip of the spear for this inflation data. That's estimated to come through month-over-month the headline level at .7% right in line with the prior. And that would bring the year-over-year number up to 7.7%. Up .7% from the prior. I mean other important data I will say that the last one I'll mention there's some other good stuff this week, but retail sales we get on Thursday as well. After a very hot August print of 1.1% for the headline. It's you know estimated to cool off a little bit, still estimated to come through .3%. We'll see what the details show. Retail sales in general have been running pretty firmly this year. On you know if you look at three-month, six-month, 12-month moving averages, they're all looking pretty good. But yeah, that's the high points of next week's inflation week. >> That inflation week is going to be an important week. We'll keep everyone apprised on how those prints actually transpire. And that wraps it up for this week on DoubleLine Minutes. >> Yes, thanks to our listeners out there today on DL Minutes. Hit us up on X at DLineCap or send us an email at minutes@doubleline.com with any questions, comments, or suggestions. >> You can find more information about DoubleLine on our website doubleline.com. Don't forget to subscribe to our YouTube channel at doubleline.com/ youtube.com/doublelinecapital. And we we published a piece on diversification and the US equity market this week, so check that out if that's something that you're curious about. Thanks for tuning in and I hope everyone has a great weekend. >> Yes, thanks everybody. Stay safe and go Dodgers this Sunday. >> [music]