Favorable Bond Risk-Reward Setup Even at Lower Rates

Jeff Buchbinder (00:00):

 

<Silence> Hello everyone, and welcome to the latest LPL Market Signals podcast. Jeff Buchbinder here, your regular host back this week with my friend and colleague, Lawrence Gillum. Lawrence, how are you today?

 

Lawrence Gillum (00:13):

 

Oh, I'm doing good, Jeff. It's hard to believe it's already December though.

 

Jeff Buchbinder (00:19):

 

How's the shopping coming so far?

 

Lawrence Gillum (00:22):

 

My wife takes cares of all that. I get a lot of Amazon boxes every day, so I'm going to go ahead and say we're doing good there.

 

Jeff Buchbinder (00:30):

 

Excellent, excellent. I chip in a little bit, but yeah, my wife does a lot of that too. So we are well on our way to finishing all of that. So hopefully everybody's having a nice start to the holiday season and are ready for you know, things to slow down a bit. Things have not slowed down for the market that's for sure, although maybe they will here over the next you know, a few weeks. We got a lot of gains to digest. So here's our agenda for this week. It's Monday, December 4, 2023, as we're recording this. So stocks are down a little bit this afternoon. We are going to start by recapping last week, as we always do. A five week win streak for the S&P 500, and actually the Nasdaq. So up something like 12% off the lows, really nice rally.

 

Jeff Buchbinder (01:23):

 

But at this point stocks are a little bit overbought and probably need to take a breather. Next favorable risk reward in the bond market, Lawrence that’s your section, so I'll be looking forward to hearing from you about why I should still like bonds, even though the yields are not quite as high as they were a couple months back. Next Weekly Market Commentary for this week. I just call it, you know, falling inflation supporting soft landing, but it really, the Weekly Commentary, which you can find on lpl.com makes the case that you can still embrace risk here. The economic foundation according to Jeffrey Roach, and I agree with him, is strong enough to support further gains for stocks. And of course, we're still in this positive seasonal period. And then last of course, preview the week ahead.

 

Jeff Buchbinder (02:15):

 

The economic calendar is quite busy, but no doubt the job report will be the focus. So here's the returns for last week. You know, another positive week for the S&P up 0.8%. So that's five straight weekly gains. And they actually, I don't have the year to date return here, but it's 21.5% total return for the S&P. So it just continues to be a really, really strong year. And if you boil it down to any one thing, it's probably just, again, that soft landing, which ties into the Fed getting ready to potentially cut rates. Lawrence will tell me if I have misspoke there, but that is certainly the market's expectation at this point. The you know, the international markets came along for the ride. I think generally speaking, not Hong Kong or China, but the European markets and some of the international markets outside of Europe, strong week for Asia, for India, Australia was higher, Korea higher, so all in all, you ended up with, you know, gains for all the major international indexes.

 

Jeff Buchbinder (03:27):

 

But you know, nothing barn burning. The sector mix was a little more interest rate sensitive, I guess, than anything else. So you know, that's what explains, I think the real estate strength last week up about 5% there. Utilities outperformed, up 1.3%. And you know, I just, I would say that the cyclical sectors were kind of scattered, you know, throughout the performance rankings, good to see industrials and materials do well. Of course, those are cyclical, but oil continues to struggle. And that weighed on the energy sector which was one of the losers, and then comm services, which is where Meta and Alphabet are, that's a huge chunk of that sector. You know, those stocks were down and that weighed on that sector, which is a little bit of a high beta economically sensitive type sector. So I think that's all I'll say there. Let's go to bonds Lawrence. So why were stocks up last week? You know, my answer, I think, I mean, I mentioned the soft landing is certainly part of this rally, but if you just, you know, hone in on last week alone, I think the biggest reason stocks were up was because yields were down.

 

Lawrence Gillum (04:44):

 

Yeah, yields were down. And they continue to fall, and they've fallen quite a bit over the last, call it month and a half. Certainly since mid-October, we've seen about a 0.75% retracement in the 10-year Treasury yield. Certainly that's helped equities and it's also helped fixed income as well. So last week, good week for most fixed income sectors. The core bond index, the aggregate bond index up 2%, that was led by mortgage back securities. That's been a favor of ours for a little while here. So it's good to see the outperformance you know, even if it's only a week or two, it's good to see those AAA rated securities outperform their lower rated higher risk brethren. Treasuries up 1.7%. But even if you look at the, kind of the riskier segments within the fixed income markets then this points to that narrative about the softish landing.

 

Lawrence Gillum (05:36):

 

We're not seeing any sort of disruption in spread. So high yield bonds up about another 1.3%, and then non-U.S. bonds were up one a half to 2% last week as well. So, it was it's been a good week, good month and because of the monthly returns that we saw over the past month over the November performance for November, we got returns for the year that were in positive territory now for fixed income, not quite the year of the bond that a lot of people were expecting to come into this year. That really good November did help push year to date returns positive for a lot of these fixed income sectors, which is certainly something that we're, you know, excited about.

 

Jeff Buchbinder (06:19):

 

Yeah. And the year's not over, so, you know, maybe we'll see a little bit more gains for bonds over the next month. We'll see. So you know, I guess, you know, mortgage-backed securities, you mentioned that we like, not as interested in high yield here, right, Lawrence? Because of the valuations.

 

Lawrence Gillum (06:38):

 

Yeah, it's all valuations. I mean, if you look at just the additional compensation for owning riskier debt, it's really below longer term averages. So you're really not getting compensated to take on a lot of risk in the fixed income markets, in our view. Returns have been fine. We just think that you know, there's the potential to see spreads widen and you know, that's certainly going to negatively impact returns. Plus you can get similar type returns out of higher quality fixed income assets. So our view is why take the risk if you don't have to.

 

Jeff Buchbinder (07:10):

 

Yeah, absolutely. And those strong returns for, you know, the more interest rate sensitive, high quality bonds like Treasury, certainly points to how powerful that rate, you know, tumble <laugh> was last week. That was big. And I think, well, we will show you the 10-year chart here in a minute, but something like 70 basis points in a month, <laugh>, that's a big move. So good for bonds. The commodity side, I think, you know, the stock market's five week winning streak's a big story today. But I think also the all-time high for gold. I saw a quote of 2,130, so gold's had a really strong run. You know, people don't think about it as an interest rate sensitive asset, but it is. And you know, there's an opportunity cost to holding gold because you don't get any income from it.

 

Jeff Buchbinder (08:02):

 

So, you know, when rates rise, gold can struggle. Of course, rates went down last week a lot, and that reduced that cost of holding gold. Plus you have, you know, the re-escalation of the war in Gaza. And that is probably a little bit of an underpinning of precious metals demand, I would say. So. And then on the other side, I mentioned the oil decline. I mean, I don't think this OPEC+ meeting was quite what the energy bulls had hoped for <laugh>, because these are optional OPEC+ cuts, so we might not get much more than maybe we were getting before in terms of what the Saudis are doing. So, the demand side is just not good enough yet to turn oil higher. And you know, the supply is maybe disappointed a little bit, but that's good for the consumer, obviously good for consumer spending, prices lower at the pump.

 

Jeff Buchbinder (09:03):

 

So quick look at the S&P 500. I mean, this test of 4,600 is going to be tough, we think. So Adam Turnquist suggests you know, our technical strategist, that this might take a few attempts. So maybe the weakness today on Monday is the first failed attempt. We'll have to see. But if you can get through 4,600, you're looking at 4,800, you know, without a whole lot of resistance between those two points. Adam highlighted you know, 4,632 as an area of a little resistance. And then it's, you know, north of 4,700, 4700 to 4,7 25. A little bit of resistance but I think a lot of folks are looking at that 4,800 if we get through 46. The rallies had good breadth with it. You can see here the percent of stocks within the S&P that are above their 50- and 200-day moving averages up nicely recently, were at 85% above the 50 and 67% above the 200.

 

Jeff Buchbinder (10:10):

 

Those are really good numbers. So this isn't just the mag seven, in fact, the mag seven lagged a little bit last week as a group. So you know, I mentioned the Alphabet and Meta weakness. So this is really, you know, the other 493 stocks working, which is good to see. It's a sign of a healthy bull market. And then but then the other side of this is, yeah, we're a little bit overbought, you know, with over 30% of stocks in the S&P over the 70 RSI level that characterizes overbought. Another reason why we think we got to maybe take a little bit of a breather. So let's take a look at the bond market, Lawrence, of course, main reason you are here. So Adam has flagged this 10-year Treasury yield reverse, or actually it's an actual head and shoulders, it's not a reverse head and shoulders. The bond market is a reverse head and shoulders and yields are head and shoulders. So you know, we broke through this 4.35 number that that was key. I guess it's a Fibonacci number, but it was also previous I guess a previous high. Where do you think these yields go from here? Do we have much downside or is kind of this rally played out for now?

 

Lawrence Gillum (11:32):

 

Yeah, I mean, I'll leave the technical analysis to Adam. He's certainly the expert there. From my perspective, it looks like we are maybe a little bit long in the tooth in this rally because of the expectation of rate cuts that have been priced into markets. If you go back to October 19, when the 10- year Treasury yield hit around a little over 5%, since then, yields are down to about 75 basis points 0.75%. And now markets are expecting a fed funds rates right around 4% from the 5.5% upper bound currently. So a lot of rate hikes, or I'm sorry, rate cuts are getting priced into the market, maybe one or two too many. Our view is that, you know, perhaps the fed funds rate at the end of next year will be around 4.5%. So markets may be a little bit too aggressive here in pricing in cuts, but nonetheless, it has been a good rally.

 

Lawrence Gillum (12:27):

 

It has been something that was long overdue, given the fact that we did see yields touch 5%, in our view, a lot of that sell off in rates back in September or October was overdone. Now, we think some of this rally here is probably overdone as well. It wouldn't surprise me to see a consolidation at current levels. Our end of year target for the 10-year Treasury yield is still at that 4.25 to 4.75. I think we're going to stay in that range probably 4.25 to, you know, call it 4.50 over the course of the next couple weeks until we get into the new year. But certainly the rally that we've seen over the last month and a half has been impressive.

 

Jeff Buchbinder (13:07):

 

Oh, yeah, no doubt. So we get some key data in the next couple of weeks that will probably have a lot to do with where yields go from here. So yeah, kind of like the stock market. I mean, remember the stocks and yields have been inversely correlated. So if the yield move lower has played itself out, then you, you know, could argue that maybe the stock move higher has played itself out as well, in the short term. We're still neutral equities, which is where we've been for the past few months, which is essentially saying people, we think people should fully invest relative to target. But at the same time we acknowledge that stocks are a little bit expensive relative to our assessment of fair value. And then again, you've got some overbought conditions to work off. So thanks for that, Lawrence. Let's keep moving and go to you know, I guess you know, the point I made on the agenda was that bonds look like they have a favorable risk reward, but you, you know, you've expressed that point by saying that the asymmetric, you know, the returns are asymmetric. So what exactly do you mean by that?

 

Lawrence Gillum (14:12):

 

Yeah, so in our view, asymmetric means that there's more there's higher potential for upside returns than there is for downside for returns or for losses, now that we have higher starting yields. So what we're looking at here is what we call hurdle rates. And this is the change in yields that we'd have to see to experience a negative return over a 12 month horizon to offset 12 months of income for these various asset classes. So it's becoming increasingly challenging, not impossible, nothing's impossible, of course, but increasingly challenging to generate negative returns given where we are in terms of yield levels, particularly for short to intermediate type asset classes within the fixed income markets. For example, if you were to own a 2-year Treasury security, for example, yields would need to almost or more than double from current levels to generate a negative loss,

 

Lawrence Gillum (15:03):

 

given the starting yields. Corporates, the intermediate corporate asset class yields would need to go up by about 1.5% to get to a negative total return over a 12 month horizon. The risk reward isn't as favorable the longer you go out on the yield curve. So we've cautioned about going too far out on the yield curve, but one of the reasons why we've had an overweight fixed income allocation relative to cash is because we do think the asymmetric returns are better for kind of just short to intermediate parts of the fixed income universe. The long treasury trade, I know a lot of people talk about TLT, which we're not no recommendations there, but a lot of people talk about those securities. I just, I would caution or we would caution the risk reward for that type of trade still isn't that great. Long end yields only need to go up by about 0.3% to generate a loss. So, it's not very attractive in our view. But short, certainly the short intermediate part of the yield curve, the Treasury yield curve or the corporate curve look pretty attractive and have a favorable risk return profile in our view.

 

Jeff Buchbinder (16:13):

 

Yeah, that's really remarkable, Lawrence, that yields could go up, you know, for example, the intermediate corporate space could go up that much and you can still break even you know, yeah, I agree. You don't want to say something's impossible, but, you know, a yield going from four and a half to six just doesn't seem likely.

 

Lawrence Gillum (16:34):

 

In a 12 month horizon too. So I mean, the probability of that, it's not zero, but we do think it's pretty low. So, it's, I mean, just the risk reward you know, profile for fixed income has improved dramatically. So even though yields have fallen a lot we still think that there's a lot of value in fixed income.

 

Jeff Buchbinder (16:51):

 

Yeah, maybe it's more like five to six and a half, but whatever, it's, hopefully we didn't say, you know, it was impossible for yields to get to five when they were at three a year ago, <laugh>. So this is the same concept, Lawrence, right? Just showing people the actual potential returns in these indexes depending on what happens with rates, right?

 

Lawrence Gillum (17:12):

 

That's exactly right. So we've shown this before in other publications, but again, this speaks to the favorable risk return environment for bonds that if interest rates don't change over the course of the next 12 months, you know, you're generally expected to get your starting yields, your starting yields for those various asset classes are in those, that dark blue shaded column there. But if rates fall by about half a percent, I mean, it's conceivable that you can generate high single digit, low double digit type returns for high quality fixed income assets. And then importantly, we think, is that if rates continue to move higher, absent November, which when they fail, but if rates move higher from current levels, they can go as high as about another percent from current levels. And you're largely breaking even for a lot of these fixed income asset classes but still generating positive returns from mortgage-backed securities and intermediate corporate. So again, it all speaks to the risk reward trade off, and right now, the return potential out of fixed income, given where starting yields are, and the current interest rate environment, again, we think the Fed is likely done, so we don't expect rates to go significantly higher from current levels, but if they do, there is that cushion there that can offset the higher rates and help fixed income investors generate, you know, positive returns.

 

Jeff Buchbinder (18:39):

 

Yeah, you gave me a good segue there because one of the reasons that we think the Fed is done is because inflation keeps coming down. And so that's the, you know, that's the first chart in the Weekly Market Commentary this week from Jeffrey Roach, showing the path from essentially red to green. It hasn't been a straight line, you know, for really any of these categories, but you've seen, you saw a lot of red in, you know, February of last year when this, or earlier this year, February of 2023, when this table begins and you just move forward you know, over the, what is that eight month period and you get to a much better place. So to me, the most interesting thing about this is this super core. So, you know, the core PCE deflator is the Fed's preferred inflation measure, right?

 

Jeff Buchbinder (19:33):

 

And that's at 3% now, but if you take out food, energy and housing, okay, so it's core just takes out food and energy. You take out food, energy and housing, which has been stubbornly you know, kind of sticky, right? You know, you're still at close to four. However, if you look at the month over month, that's a year over year number. If you look month over month, it's only up 0.15%. It was up much more in September. So that is a really nice, this is why the market, the bond market celebrated this number, right? A sharp slowdown in that super core reading on a month over month basis. And in fact the Feds preferred measure, just straight core PCE, I think on a six month annualized basis is only up about 2.5%. So the Fed, if that was all that mattered, was that measure the Fed could basically declare victory now. And this is why you're even hearing it from Powell and you're hearing it from a hawk Waller, you know at the Fed, this is playing out exactly as they anticipated or had hoped.

 

Jeff Buchbinder (20:43):

 

And they're not going to come out and say they're going to declare victory, but you can kind of read between the lines of what they're saying. It's highly, highly unlikely that they would hike rates again over the next few months. And, you know, they may not cut in March, which the market's starting to say they will, but, you know, probably by summer we'll have a cut maybe two. So anything to add to that, Lawrence?

 

Lawrence Gillum (21:09):

 

Well, I think your point about the annual versus taking shorter horizons and annualizing, that is an important one because as we've seen on this chart, these inflationary pressures are falling. So these year over year things that we're showing here, these year over year numbers here are overstating the actual numbers likely. So if you do take a three month horizon and annualize that, or a six month horizon, and you annualize that, you probably get a better picture of the current inflationary dynamics, and those have improved significantly over the past couple months. So no, I agree that it's certainly moving in the right direction. We'll get a new there's a Fed meeting next week. We'll get a new Summary of Economic Projections, which will include like dot plots and things like that, as well as their forecast for inflation and growth. And we're likely going to see a draw down in inflation expectations over the course of next year and potentially you know, more cuts in their dot plot than what was what was shown last September. So yeah, a lot of great news in the markets, and certainly bond market has taken that in stride and equity markets have rallied. So a lot of good news here.

 

Jeff Buchbinder (22:19):

 

Oh, no doubt. Hopefully we don't have to, you know, talk about the unwinding of rate cut expectations in the next month or two <laugh>, but at some point you know, you might get a little bit of volatility around that. We'll have to wait and see, but inflation clearly moving in the right direction. And that last stubborn piece, the housing is by all accounts, apartment rents are coming down really nicely based on the real time metrics that we get. You know, these inflation numbers are a little bit stale, a month old plus. So, this next chart from the weekly that Jeffrey Roach did is about how good spending has kind of gotten out over its skis and services spending maybe has only a little bit more upside. So what this tells you is that even though we had the booming GDP growth in Q3, the economy is slowing in Q4, it's probably still going to grow but slowing.

 

Jeff Buchbinder (23:21):

 

And then you know, that's kind of sets the table for slower growth in 2024, right? You're not going to, we've kind of seen this services spending boon, play out, you know, the post COVID recovery, we're almost to trend, not quite real close. And then goods, we've just gone way over trend and probably need to cool a little bit. The inflation picture kind of mirrors that because you know, good spending needs to slow has, you know, needs to come down. And the inflation for good spending has already come down. In fact, it's negative year over year. I'm sorry, it was negative month over month, even though it's slightly positive year over year, that 0.2%. So, the battle against goods inflation is already over, it's been won. It's about that services piece. But the, actually this is on a six month basis, which is better.

 

Jeff Buchbinder (24:20):

 

The six month change in services inflation is 1.8. So that's below the Fed's 2% target. So the last month was, again, that last month's reading of inflation really, really good. We just need a little bit more on the services side. So Jeff did a nice job of, you know, making some points about asset allocation and investment opportunities and tying those to the economic conditions. So one way he did that is with this chart, this shows market stress by region. The ECB has regional market stress indicators. It's kind of like the financial conditions index, which I know we've talked about on this call in the past or just in general, when the Fed, you know, cuts rates, they are easing financial conditions in general, or when banks are lending more, you know, easing their terms. That's sort of an easing of financial conditions.

 

Jeff Buchbinder (25:20):

 

So we've talked about financial conditions in that respect. This is similar, right? The similar concept. So what you see here is that at least in recent months the U.S. has had less market stress than Europe and the U.K. We didn't put Asia on here, but just U.S., UK and EU. EU and the orange is up top, certainly the war in Ukraine is part of that story, and higher energy costs over there. Another part of that story, and they've also had a little bit of a tougher time bringing down inflation, although the last readings there were quite good. So maybe you could, in fact, Lawrence, I'd like your thoughts on this. Some are arguing now that the ECBs going to cut before the Fed, which, you know, most people would've thought just a few months ago that that was impossible. <Laugh>, right? So maybe, you know, give Europe credit they have, you know, cut rates pretty aggressively just like we have and they've brought inflation down. What do you think?

 

Lawrence Gillum (26:23):

 

Yeah, for sure. I mean, and this is just, it's really, it's not a U.S. dynamic as we've talked about. I mean, inflation globally is coming down in a lot of places. We are starting to see central banks start to cut rates now. There's actually been more rate cuts over the last couple months than there have been rate hikes. So what all the aggressive rate hiking that's taken place over the last couple years, we're starting to see it slowly unwind, which is a good thing for consumers. It's good for the economy. Of course, it's good for equity markets, it's good for fixed income markets. You know, I don't want to, I mean, I'm not going to say you know, mission accomplished or declare victory too soon, but certainly inflationary pressures are moving in the right direction. And you know, it's done what it was supposed to do. All these central banks rose rates to slow economies. And that's happened. And, you know, it's performing as expected, right? Inflation is coming down because of the response out of central banks.

 

Jeff Buchbinder (27:26):

 

Yeah, absolutely. We've got to watch financial conditions. If they get too easy as the prices move high, too high, too fast, that could scare the Fed a little bit. So, again, not declaring victory, but this is good news that this financial stress has come down, improved a little bit here over the last you know, month or so with the rally in the equity markets and the move lower in yields. So let's turn to the preview for the week, the economic calendar, Lawrence, and then we'll wrap up. Thanks for all those comments on bonds and inflation. So I think that the jobs report is by far and away the most important thing we're going to watch this week. I think we're going to take the under on this, you know, 190 might be a bit high. In fact, I've seen several forecasts that are below that from economists that I follow, and Jeffrey Roach, among them, he thinks maybe we'll be more like 150. So, that's not necessarily bad for markets, right? Could put some downward pressure on yields and clearly the equity market wants to see lower yields. The average hourly earnings matters, right? Because that's the wage number, which is a big piece of inflation.

 

Jeff Buchbinder (28:45):

 

Actually, consensus is reflecting a little bit of an uptick, 0.2 last month to 0.3 this month. So hopefully we will see a 0.2 in the market can celebrate that. We'll just have to wait and see. But that's going to be the next milestone, I guess, that rates have to cross to kind of solidify this downtrend. Then you get the Fed meeting and CPI after that. So anything else here, Lawrence, that you think is worth noting?

 

Lawrence Gillum (29:17):

 

I highlighted ISM services on one of my reports this morning. Just, because the services sector continues to be you know, looked at in terms of inflationary pressures. So we'll see if how that performs. It's still one of the areas that is growing, that it's not in contraction, unlike the manufacturing side. But no, the jobs report is going to be the big report. I'll also say what's not on here is important as well for markets. And that's, there's no Fedspeak this week. They're in the blackout period for Fedspeak. So over the past couple weeks there's been, gosh, you know, double digit type meeting or speaking engagements for Fed officials, and it's just, it creates so much volatility in markets when they're all out there talking and saying potentially different things. So it's the quiet period, which is good. So hopefully that means less volatility this week in markets, knock on wood, hopefully I just didn't jinx us there. But yeah, jobs and ISM services I think are important things to watch this week.

 

Jeff Buchbinder (30:22):

 

Yeah, if we if we want to drive our listenership down and our viewership down, all we do need to do is do a podcast that says Fedspeak, nothing else, just do 30 minutes of Fedspeak that's my idea there, which maybe we'll table.

 

Lawrence Gillum (30:37):

 

Yeah, I don't like that idea.

 

Jeff Buchbinder (30:40):

 

So but yeah, what it really matters even to equities when a hawk speaks like a dove. And that's kind of what we saw last week with Waller. So yeah, I agree, ISM services important. Services is a bigger part of the economy. The manufacturing, manufacturing's been weak. The ISM manufacturing's been weak, but it hasn't mattered. <Laugh>, right? We all know what the stock market's been doing. The economy is more service oriented and you know, I guess we kind of priced in manufacturing weakness already. So you know, that's not alarming. It's not a terrible number. It's not quite recessionary. The ISM manufacturing and the 46-47 range. But service is much better expected to uptick to 52.3. That's a pretty good, you know, clearly expansionary number. And that's really all this market needs I think to go higher next year is just a little bit of economic growth, maybe just skirt by recession, keep inflation low and rates down. We'll certainly make many more comments about that, about 2024 in the 2024 Outlook, which we will be coming out with next week. So maybe the Fed meeting isn't the biggest event next week, Lawrence. Maybe it's the LPO Research 2024 Outlook.

 

Lawrence Gillum (31:55):

 

I bet they're going to read our Outlook before they actually convene in their meeting just to see what we think.

 

Jeff Buchbinder (32:00):

 

Yeah, maybe that could guide the commentary from the Fed, that's a great point. We can't give them an advance copy. You know, I know they get some of the economic data in advance, but no, we're not doing that with our Outlook. That's, we're going to keep that one close to the vest and they'll have to just adjust their schedule around us. <Laugh>, Good stuff. Alright, so, yeah, the only other thing I want to call out here real fast is claims did rise last week quite a bit. So there's a little bit of, you know, we've talked about cracks, right? There's little signs of tiny cracks in the economy. Continuing claims is another one of those. But we want the economy to slow here to get the Fed off our back and get inflation down and rates down.

 

Jeff Buchbinder (32:43):

 

So that isn't alarming at all. This is really what we expected. The Fed wouldn't admit it, but they were trying to bring unemployment up a little bit. They haven't done much damage yet. I mean, we're still under 4%, so soft landing's still in play. So with that, we'll go ahead and wrap. Thanks, Lawrence, for joining another Market Signals podcast. Thanks everybody for listening. Hopefully we'll be back with you next week, talking about a six week win streak for the S&P 500, we'll have to wait and see. Everybody have a great week and we'll see you then.