PORTFOLIO PERFORMANCE, DIVERSIFICATION, AND STRATEGY
“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 INVESTED Funds available for investment at market value include the State Treasurer’s investments at $12,414,070,023 and State Agency balances in OK Invest at $4,169,594,940, for a total of $16,583,664,963. |
| MARKET CONDITIONS |
Treasury yields declined in August in anticipation of Fed cuts. The 2-year and 10-year yields dropped 34 basis points and 12.7 basis points respectively to 3.92% and 3.90%. The slope of the segment flipped for the first time since July 2022 indicating the beginning of a long-term trend toward a positively sloping yield curve; however, the 3-month treasury read 5.12%, a far cry from a positively sloping curve.  |
| Year to date, the S&P 500, Dow Jones, and Nasdaq have gained 18.4%, 10.3%, and 18.0% respectively. The Dow Jones Industrial Average closed the month at an all-time high of 41,563.08, fueled by the market’s anticipation of interest rate cuts and cheaper credit as more consumers and investors are buying into the soft-landing possibility. |
| The accumulation of economic data since the Fed’s July meeting prompted them to lower rates by 50 basis points on September 18, 2024. Chairman Jerome Powell and the committee chose to move toward neutral monetary policy and stay ahead of the curve. The Fed has gotten close to its inflation mandate with early estimates for August inflation at 2.2% and chose to cut rates to remain in balance with unemployment levels. |
ECONOMIC DEVELOPMENTS |
| The national unemployment rate rose to 4.3% in August after a downward revision of July’s number to 4.2%. Non-farm payrolls increased 142,000 but, below Bloomberg consensus estimates of 165,000. The combined June and July non-farm payroll estimates were reduced by 86,000 jobs. With four consecutive downward revisions, the Bureau of Labor Statistics may be overestimating this number. The 3-month moving average non-farm payroll fell to 116,000 jobs added in contrast to average monthly job growth of 251,000 in 2023. |
| The consumer price index (CPI) fell to 2.5% for the year ending in August, the lowest reading on the index since February 2021 and core CPI, which excludes volatile food and energy prices, was 3.2% over the same period. The Bureau of Labor Statistics reported that rising housing costs made up 70% of the change in Core CPI. Core personal consumption expenditures (PCE), the Fed’s preferred measure of inflation increased 2.6% over 12 months ending in July driven by a 3.7% increase in spending for services. The producer price index (PPI) increased 0.2% in August after revising July to no change. In August the final demand for goods was unchanged and final demand service prices rose 0.4% after declining 0.3% in July. Most of the rise in the final demand service index is attributable to services less trade, transportation, and warehousing where guestroom rental prices rose 4.8% Final demand indexes for furniture, machinery, vehicles, and fuel also rose. |
| Retail sales growth measured 0.1% in August and was revised upward to 1.1% in July. For the year ended in August, retail sales were up 2.1%, slower than July’s year end of 2.9%. August growth came in above expectations of -0.2% per Reuters economists. Online store sales rebounded 1.4% last month after falling 0.4% in July. Gas station sales fell 1.2% reflecting lower gas prices and likely freeing up money to be spent across other sectors. Overall, consumer spending in August was not affected by soft employment data. The personal saving rate dropped to 2.9% in July, the lowest since June 2022 near lows not seen since 2008. |
| Existing home sales decreased by 2.5% in August to a seasonally adjusted annual rate of 3.86 million, down 4.2% from August 2023. Total housing inventory increased to 1.35 million which is up 22.7% from a year ago. Zillow.com writes that the average mortgage rate for prime borrowers fell to 6.35% at the end of August in anticipation of the cuts that the Fed delivered on. The median existing home sales price in August was $416,700, a decrease from July. |
| In second quarter of 2024 gross domestic product (GDP) growth was revised upward to 3.0%. Compared to first quarter GDP growth of 1.4%, Q2 saw a resilient acceleration in consumer spending and inventory growth. Gregory Daco Ernst & Young Chief Economist writes, “the major blemish in this report came from gross domestic income (GDI) only rising 1.3% in Q2”. Despite this softer data point and the softer labor market, any US recession fears are overstated, and the economy is still moving forward at a moderate pace. |
| COLLATERALIZATION All 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 COMMISSIONS Securities 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 cc: The Honorable Kevin Stitt, Governor The Honorable Charles McCall, Speaker of the House The Honorable Greg Treat, President Pro Tempore The Honorable Gentner Drummond, Attorney General The Honorable Cindy Byrd, State Auditor and Inspector View full report below. 2024 August Investment Report.pdf |
