By Gayl Mileszko
On The Menu
Chefs trained at the best culinary schools in the world all have their lists of dishes that everyone should master. Whether cooking for oneself in a studio apartment, feeding a big family, dreaming of opening a bistro, or serving as a private chef on a luxury yacht, the professionals trained in top notch programs such as Le Cordon Bleu, the Culinary Institute of America, and the Auguste Escoffier School insist that we practice a few basics until perfect. Roast a chicken. Make an omelet. Mix a Caesar salad. Grill a burger. Bake a loaf of bread. Whip up a batch of chocolate chip cookies. Some stretch their recommendations to include fancier classics such as beef bourguignon, coq au vin, ratatouille, and cassoulet. Others hold firm on staples like mac and cheese, Spaghetti Bolognese, paella, potato pancakes, and buttermilk biscuits. Just perusing the lists makes us hungry and anxious to head to the kitchen.
Political Choices
Away from food, we are presented with a wide variety of menus every day. In the political arena, Massachusetts just held a primary for offices including U.S. Senate on Tuesday. Delaware, Rhode Island and New Hampshire have the last of the nation’s primaries scheduled for next week. This Friday, voters in North Carolina are able to start early voting by absentee ballot; elections and referenda will be held two months from now on November 5. That date will mark our nation’s 60th quadrennial presidential election, and the next president will be our 47th. Between now and then, polls and betting odds will change many times over, not only for the presidency, but for control of the U.S. House and Senate, gubernatorial positions in 11 states, the composition of state legislatures, judiciaries, mayoralties, town councils and many other key state and local posts. So far, there are also 160 certified statewide ballot measures to be decided. The menu choices we make will have great bearing on many aspects of our lives, including financial ones. But between now and Election Day, almost anything can happen.
Risk Matrix
In the scheme of things, there are known knowns, unknown knowns, known unknowns, and unknown unknowns. This is the risk array, an awareness-understanding matrix outlined by former Defense Secretary Donald Rumsfeld at a 2002 news briefing on Iraq. The risks he categorized have come apply to many types of situations, including those impacting financial markets. Traders have since fashioned their own version of market movers, borrowing from forms in the animal kingdom. “White Swans” describe events that are foreseeable and prepared for. “Paper Tigers” are events that are unforeseen but that we have prepared for. “Gray Rhinos” are high probability risks that we have not prepared for. And “Black Swans” of course are rare events such as the housing market crash of 2008 and the COVID-19 pandemic, beyond the realm of normal expectations, extreme outliers that have catastrophic impacts on markets, investments and economies.
Menu of Market Wildcards
There is a big menu of events, related or unrelated to the November elections, that can impact our financial markets in the next few months. Cyberattacks. Court decisions. Failed Treasury auctions. Weather disasters. AI disruptions. A government shutdown. A third U.S. downgrade. Escalation of war. Massive withdrawals of money market and/or exchange traded funds. And plenty more that we cannot imagine — or can imagine but prefer not to articulate. We cannot help but run through each and every one of them all and wonder if, or how, we can prepare for them. This is a good time to reach out to your HJ Sims representative for help in thinking through the options. Do we come to market early? Do we take profits and move to cash? Should we increase allocations to crypto or energy or precious metals? Do we buy more bonds or defensive stocks? Do we just stick to our plans and not let the volatility rattle us?
Menu of Investment Options
There are so many investment options available to us, and we can look over any number of time frames to see how our choices have played out. Today, let us just take a look at how the various asset classes and sectors have fared since the start of the year. And then how each has fared since the start of the pandemic in March of 2020.
2024 Year-to-Date Performance
In the first eight months of 2024, the S&P 500 Index gained 18.4%, the NASDAQ returned 18%, the Dow was up 10.3%, and the Russell 2000 rose 9.4%. Gold prices were up 21% while steel lost 37%, iron ore was down 27%, and natural gas prices fell 15%. Zinc prices jumped 9%, copper gained 8%, and WTI crude oil increased 3%. Bitcoin is up 40%. In the bond markets, the 2-year Treasury yield fell 33 basis points to 3.91%. The 10-year yield at 3.90% rose 3 basis points. The 30-year yield at 4.19% was 17 basis points higher. The ICE BofAML Treasury index returned 2.71%. The 10-year BAA corporate bond index yield at 5.50% fell 29 basis points. The high yield corporate index ended at +6.29%, and the investment grade corporate index was up 3.97%. The preferred stock index returns totaled 7.66% and the convertible bond index gained 5.52% In the municipal market, the 2-year general obligation bond MMD yield at 2.45% was 7 basis points lower, while the 10-year at 2.71% jumped 43 basis points and the 30-year at 3.60% increased by 18 basis points. The high yield muni index YTD stood at 7.05%, the non-rated muni index at 5.70%, the taxable muni index at 3.47% and the investment grade index at 1.59%.
Market Upheaval Since the Pandemic
Looking back to March 13, 2020, when the national pandemic emergency was declared, markets have varied from extreme volatility to relative calm, with yield curves inverted to degrees never before seen and with stock and bond markets often oddly correlated. Over these years, investors had to digest unprecedented levels of federal interventions and stimulus, significant changes of administration policies, major court rulings, new wars, supply disruptions, high inflation, zero and negative rates, and the acceleration in the adoption of artificial intelligence. We know that past performance is not indicative of future results. But Bitcoin prices have risen from $5,212 to $58,541, a staggering 1,023% increase. Oil prices have risen 131%, the NASDAQ is up 125%, the S&P 500 is 108% higher, the Russell 2000 has increased 83%, the Dow has returned 79%, and gold prices are 63.6% higher. The 2-year Treasury yield has climbed 342 basis points, the 10-year is 294 basis points higher, and the 30-year has risen 267 basis points. The BAA corporate bond yield is 182 basis points higher. In the municipal market, a total of $1.83 trillion of bonds were issued and, during this time, the 2-year AAA municipal general obligation bond yield climbed 133 basis points, the 10-year added 110 basis points higher and the 30-year increased 128 basis points.
Municipal Performance Summer 2024
The muni market had a good summer. Investors received a whopping $166.6 billion of principal and interest payments and saw $137.5 billion of issues come to market. August issuance in fact set a new all-time record; the MSRB reports $53.187 billion of bonds were sold. We have seen nine straight weeks of net inflows into muni bond funds, which now number 514, holding $782.5 billion of assets. Municipal money market fund assets currently total $129.9 billion, with $118.5 billion in the hands of households. There are now 103 municipal bond exchange traded funds with $132.3 billion under management. Between June 1 and August 31, taxable muni index returns totaled 5.32% while high yield munis gained 4.26% and investment grades added 3.25%. Indices with tax-exempt maturities from 2046 and out gained 3.72%, multifamily bonds returned 4.59%, while hospital bonds gained 3.54% and higher education saw increases of 3.48%.
HJ Sims in The Market
HJ Sims has a $20.3 million charter school financing this week for The Hughen Center, a Texas nonprofit better known in the market as Bob Hope School, with more than 2,600 students in pre-K3 to 12 learning programs on 5 campuses in Port Arthur, Beaumont, and Baytown, all lasting beneficiaries of the great entertainer’s fundraising prowess. Bonds are being offered through the Newark Higher Education Finance Corporation to make various upgrades and construct a new school in Pasadena. Given its BBB-minus underlying rating, our financing has secured the triple-A guarantee of the Texas Permanent School Fund.
Recipes for the Last Quarter of the Year
As we all adjust to the end of summer, the return to school and work, the imminent start of a new federal fiscal year and all the excitement and questions that accompany another election season, markets continue to move. We all have a lot on our menus this Fall. As we try to stay on top of developments in the Middle East and Ukraine, the imminent discussions over FY25 government funding, the major hotel strikes underway, the last of the second quarter corporate earnings releases, the meetings of the G7 heads of parliament in Italy, the China-Africa forum in Beijing, as well as all the major economic data here at home including manufacturing, job openings, the Beige Book, and nonfarm payrolls, please stay in touch with your HJ Sims representative. We will always have some fundamental guidance to share, and lots more tailored to your particular needs and interests. But, no matter what, we always look forward to sharing our favorite recipes. The 2024 HJ Sims Holiday Cookbook will benefit from your contributions!