September 2024 State of Oklahoma Investment Report

Todd Russ, Oklahoma Treasurer

PORTFOLIO PERFORMANCE, DIVERSIFICATION, AND STRATEGY

September portfolio yielded 3.45%, up from 2.82% last year, with a weighted average maturity of 959 days.

Total assets under management of $17 billion, up $1.6 billion in comparison to September 2023.

Total portfolio contained 72.4% in U.S. Treasurys, 3.5% in U.S. government agencies, 14.6% in mortgage-backed securities, 8.5% 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.

“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 $12,924,874,500 and State Agency balances in OK Invest at $4,099,025,117, for a total of $17,023,899,616.

MARKET CONDITIONS

Treasury yields declined broadly in September. The 2-year and 10-year note yields dropped 27.6 and 12.3 basis points respectively to 3.64% and 3.78%. The 3-month treasury bill, which fell 49 basis points in the month to 4.63%, is moving toward the 10-year note as the yield curve, a visual relationship of U.S. interest rates and the maturity dates of treasury securities, is undergoing a process of disinversion.

Year to date, the S&P 500, Dow Jones, and Nasdaq have gained 20.8%, 12.3%, and 21.2% respectively. The S&P 500 and The Dow Jones Industrial Average closed the month at all-time highs of 5,762.48 and 42,330.15 respectively. All three indexes performed well this month despite that September is historically the worst month for U.S. equities.

So far, the Federal Open Market Committee (FOMC) is making good on their promise of achieving the dual mandate. Economic indicators reveal cooling inflation and a healthy labor market. The Fed will continue evaluating future decreases in the federal funds rate to maintain maximum employment and price level stability. According to the CME FedWatch tool, the market is expecting a 25-basis point rate cut at the FOMC’s November 7th meeting.

ECONOMIC DEVELOPMENTS

The unemployment rate fell to 4.1% in September after an upward revision of August’s number to 4.2%. Non-farm payrolls increased 254,000, above consensus forecasts of 150,000. Jobs growth was led by the leisure and hospitality, healthcare, and government sectors. The combined July and August non-farm payroll estimates were increased by 72,000 jobs. The 3-month moving average non-farm payroll rose to 186,000 jobs. The federal reserve cannot declare victory, but this is an encouraging sign that the labor market is stabilizing. However, supply managers remain pessimistic regarding the economic outlook, with approximately 62% expecting a recession, or a sharp downturn in economic activity in the next 6 months.

The consumer price index (CPI) fell to 2.4% for the year ending in September, the smallest increase over a 12-month period since February 2021. In the same period, the price index for energy decreased 6.8%. Core CPI, which excludes volatile food and energy prices, increased 3.3% over the same period. The Bureau of Labor Statistics reported that rising housing costs made up 65% of the change in Core CPI. Core personal consumption expenditures (PCE), the Fed’s preferred measure of inflation increased 2.7% over 12 months ending in August. The producer price index (PPI) was unchanged in September. In September the final demand for goods fell 0.2% and final demand service prices rose 0.2% after rising 0.4% in August. The fall of the final demand goods index this month is attributable to a 2.7% drop in final demand energy prices led by a 5.6% decrease in the index for gasoline.

Retail sales growth measured 0.4% in September and was unrevised at 0.1% in August. For the year ended in September, retail sales were up 1.7%. This month’s growth came in above expectations of 0.3% per The Wall Street Journal. The growth in September was increased most by a 1.0% increase in sales at both grocery stores and food services and drinking places. The growth was reduced by another fall in sales at gasoline stations. The personal saving rate was 4.8% in August after July’s estimate was revised from 2.9% up to 4.9%.

The most recent report from the National Association of Realtors reports existing home sales decreased by 2.5% in August to a seasonally adjusted annual rate of 3.86 million homes, down 4.2% from last year. Total housing inventory increased to 1.35 million, up 22.7% from a year ago. Mortgage rates are falling. Zillow.com writes that the average mortgage rate for prime borrowers fell to 6.18% at the end of September in anticipation of the cuts that the Fed delivered on. The median existing home sales price in August was $416,700.

In second quarter of 2024 gross domestic product (GDP) growth was 3.0%. Compared to first quarter GDP growth of 1.6% (revised), Q2 saw a resilient acceleration in consumer spending and inventory growth. The increase in real GDP primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investment. Private goods-producing industries grew by 6.9%, led by manufacturing. Gross Domestic Income (GDI) rose by 3.4%, an upward revision from previous estimates.

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.