PORTFOLIO PERFORMANCE, DIVERSIFICATION, AND STRATEGY
June portfolio yielded 3.38%, up from 2.67% last year, with a weighted average maturity of 1008 days.
Total assets under management of $16.7 billion, up $1 billion in comparison to July 2023.
Total portfolio contained 72.5% in U.S. Treasurys, 5.2% in U.S. government agencies, 15.1% in mortgage-backed securities, 6.2% money market mutual funds, 0.2% in certificates of deposit, and 0.8% in state bond issues and foreign bonds, comprising the balance of funds invested.
“Yields will continue to grow as the portfolio sheds the older investments and takes on the influence of the new rate range. Total portfolio yields are lower than current yields due to the laddered structure of the investments over a 3 year average.”
STATE TREASURER, TODD RUSS
| TOTAL FUNDS INVESTEDFunds available for investment at market value include the State Treasurer’s investments at $12,585,619,056 and State Agency balances in OK Invest at $4,105,489,308, for a total of $16,691,108,364. |
| MARKET CONDITIONS |
Treasury yields declined in July continuing the pattern of a downward trend from April’s highs. The 2-year and 10-year treasury yields dropped -0.50% and -0.37% to 4.26% and 4.40% respectively. The gap between the 2-year and 10-year rates on the inverted yield curve decreased to-0.23.  |
| Core PCE, the Fed’s preferred measure of inflation increased 2.6% over 12 months ending in June signaling progress towards targeted 2% inflation. Fed Chair Powell said, “longer-term inflation expectations appear to remain well anchored”. at the July 31 Federal Open Market Committee (FOMC) meeting expressing the committee’s confidence in the health of the economy. The major indices posted mixed returns in July. The S&P returned 1.1% and the Dow Jones returned 4.4%. The Nasdaq rose 2.6% on the last day of the month digging its way out of a -0.8% hole for the month. The markets are looking forward to likely rate cuts in September which are likely already priced in. |
| The Federal Reserve held a press conference on July 31 and made no change to the federal funds rate for the twelfth straight month reflecting a 22-year high. At the conference Jerome Powell emphasized the dual mandate and historically low unemployment rate in defending the decision, “the labor market feels like it’s in a place where it’s just a process of ongoing normalization”. |
ECONOMIC DEVELOPMENTS |
| The unemployment rate rose to 4.3% in July, and nonfarm payroll employment edged up by 114,000, the smallest gain in three and a half years, from the U.S. Bureau of Labor Statistics. Reuters reported the rise from 4.1% in June marked the fourth straight monthly increase remaining the highest level since October 2021. Average hourly earnings increased 0.2% in July, bringing the year-over-year change down to a three-year low of 3.6%. |
| The consumer price index (CPI) fell to 2.9% for the twelve months ending in July, the lowest reading on the index since March 2021 and core CPI, which excludes volatile food and fuel prices, was 3.2% for the same period, supporting a three-month trend of mild price-level growth. The economic report supported cooling inflation and strongly hints the FOMC will cut rates in September. The producer price index (PPI), which measures the prices businesses receive for their goods and services, increased 0.1% month over month, coming in below expectations. Year over year PPI was 2.2%, the smallest annual uptick since March of this year, and the index for final demand services fell 0.2%. The Bureau of Labor Statistics reported the, “rise in the index for final demand goods is attributable to a 2.8% advance in prices for gasoline”. |
| Retail sales gained 1.0% in July and were up 2.7% from last year. The New York Times writes, “the strong report, which is not adjusted for inflation, pointed to resilience in consumer spending and provided reassurance after recession fears prompted a market sell-off this month”. Retails sales for June were revised down to -0.2% from no change reported by the Census Bureau last month. Consumers increased automotive spending more in July relative to other categories. Gas and motor vehicles and parts sales rose 2.4% and 6.2% respectively this month. |
| Existing home sales fell 5.4% in June compared to the previous month. The fourth consecutive decline in sales underscored the challenges homebuyers continue to face. Pending home sales, an index maintained by the National Association of Realtors that reflects existing home sales, were measured at a 20-year low. But the index from the National Association of Realtors rebounded 4.8% in June. Higher for longer mortgage rates have drained demand but home inventories are a silver lining. As of June, Single-family home inventories are up 22.1% year over year. The decline comes as the median sales price climbed to a record high of $432,700. |
| In second quarter of 2024 gross domestic product (GDP) grew at a 2.8% annualized rate, exceeding expectations of 2.1% and faster than the pace of economic growth of 1.4% in the first quarter. According to the Wall Street Journal, “the U.S. consumer remains a source of strength in the economy”. More than half of the growth in the second quarter came from consumer spending. Trade continued to be a drag on GDP growth. Significant imports drove net exports, which are subtracted in GDP calculation, to reduce the lead figure by 0.72%. |
| COLLATERALIZATIONAll funds under the control of this office requiring collateralization were secured at rates ranging from 100% to 110%, depending on the type of investment. |
| PAYMENTS, FEES AND COMMISSIONSSecurities were purchased or sold utilizing competitive bidding. Bank fees and money market mutual fund operating expenses are detailed in the attached pages, as is the earnings split between the State Treasurer and the master custodian bank on securities lending income. |
Best regards, TODD RUSSSTATE TREASURER |
