By Gayl Mileszko
A New Political Landscape
For most of us, it is hard enough to guess what the weather and local grocery prices will be from day to day never mind what the landscape in Washington will look like in January or four years from now. But there are dozens of pollsters being paid millions and millions of dollars to tell campaigns which way the wind is blowing and precisely what that political landscape will be. They really got it wrong once again this time, missing the winners, the margins, or both. They have become like the U.S. Labor Department with its monthly jobs data, requiring so many revisions that the reports have become unreliable, indeed nearly worthless.
Polls Wrong, Betting Markets Right
America went to the polls on Election Day and proved the political survey-masters wrong. Maybe the sample sizes were too small, maybe they made the results match a narrative or their own biases, or maybe they eliminated too many of what they dubbed as outliers. As it turns out their errata turned out to be a clear majority of the voting public. It was only the betting markets, the prediction markets, that made the right call: that Donald J. Trump, the 45th President, will become the 47th President, following in the rare path of Grover Cleveland who served as #22 and #24 between 1884 and 1896.
Awaiting Final Results
Results from several states are not yet in at this writing, and nothing is final until the Electoral College meets on December 17 and then members of the 119th Congress count and certify the electoral votes on January 6. In the meantime, all eyes are on the two dozen House races that remain too close to call. These outcomes will determine which party has majority rule in the lower chamber and whether there will be a unified government. Since 1857, there have been 48 times when the White House and both chambers of Congress were under the control of the same party: 23 under Democrats and 25 under Republicans. The betting markets believe this will be the case again in 2025, and in these first few hours of post-election trading so do the financial markets.
Initial Market Reactions
For more than 175 years, since Zachary Taylor won the presidency as a member of the Whig party in 1848, it has been the Associated Press that has made the unofficial declaration of the outcome of election contests. The official counts by states may take another month, but the AP rapidly collects and stitches all of vote totals together from thousands of counties and towns once the polls have closed. This year, they made the big call at 5:34 a.m. ET on Wednesday. But even before that, overseas markets and U.S. pre-market stock trading saw the writing on the wall. World equity and bond indices immediately reacted. U.S. stock futures rallied with the Dow up more than a thousand points, as traders plowed into energy, defense and crypto sectors, among others. The U.S. dollar surged. The Hang Seng and Shanghai Composite indices tumbled. Bonds reacted by selling off as investors perceived a significantly stronger economic growth outlook incentivizing risk taking. There is also an expectation, similar to the one in 2016, that Trump Administration tax, immigration, and tariff policies will boost inflation, reducing the chances of future rate cuts, elevating yields, budget deficits and Treasury issuance. Some see these initial market moves as overreactions common in post-election volatility. As the transition team releases more detail on personnel and policy moves, and Congressional priorities are clarified, investors will once again turn their focus to balance sheets, guidance, innovations, and value.
Borrowers on the Sidelines for Elections and Fed
Ahead of the November 5 voting, many, many issuers of corporate and municipal bonds elected to sit on the sidelines, avoiding volatility and waiting for more certainty on the direction of fiscal policy. Many year-long plans for bond sales were designed to avoid early November timing altogether. This led to unusually elevated municipal volume in every month since May. October new issue volume totaled $65 billion, a 48-month high, bringing year-to-date supply over $440 billion – more than the entire full year issuance in 2022 and 2023. Investment grade corporate issuance exceeds $1.35 trillion this year, and high yield corporate sales at $257.6 billion are on track to surpass the combined volume of 2022 and 2023. But this first full trading week of November offers little primary market action due to the meeting of the Federal Open Market Committee as well. The Fed delayed its usual two-day Tuesday to Wednesday schedule by a day to avoid the elections and grab a later headline. They have been clearly signaling a 25 basis point cut for months, and the weak October jobs report, offset in part by the positive Services Purchasing Managers’ Index and ISM Services Employment, will not likely change the reduction announcement or wait-and-see press statement on Thursday afternoon.
HJ Sims in the Market with Hayward Twin Oaks Montessori School Ahead of Election Week
The muni slate was active ahead of Election and Fed Week. HJ Sims brought a $21 million non-rated financing for Hayward Twin Oaks Montessori School through the California School Finance Authority. We structured the deal with 4 term bonds including a 2064 maturity priced at 6.125% to yield 6.25%. Among the public charter school deals in the market, Success Academy came to market with a $150 million A-minus rated deal through the Building NYC Resource Corporation; it featured 2044 term bonds priced eat 4.00% to yield 4.23%. The Baa3 rated Executive Education Academy Charter School in Allentown, Pennsylvania sold $74.6 million of refunding bonds including a 2059 maturity priced with a coupon of 5.00% to yield 5.06%. Rex and Margaret Fortune School of Education in California had $85 million of non-rated sales that came through two state issuers with a 2064 term bond priced at 5.125% par to yield 5.32%. AcadeMir Charter Schools in Florida had a $21.6 million Ba2 rated offering that sold with a 40-year final maturity priced at 5.25% to yield 5.45%. Huron Academy in Michigan brought its Ba1 rated refunding that included a 30-year term bond priced at 5.00% to yield 5.25%. The Carolina Voyager in Charleston, South Carolina financed $15.1 million of Baa3 rated bonds with a 30-year term bond priced at par to yield 5.00%. And the Wasatch Peak Academy in North Salt Lake, Utah brought a $6.3 million BBB-minus rated refunding that featured 204 term bonds priced at 5.00% to yield 4.57%. In the private school sector, the Harvard-Westlake School in Los Angeles came with an $87,7 million AA+ rated transaction due in 2039 with a 5.00% coupon priced to yield 3.19%. In the senior living sector. Moldaw Residences in Palo Alto had a $59.4 million AA-minus financing, enhanced with the state’s mortgage insurance program, that had a 2049 final maturity priced at 5.00% to yield 4.20%.
HJ Sims: We Salute America and Our Municipal Bond Market
The penultimate month of 2024 has begun with a bang. We have witnessed a truly astonishing American political comeback, a voter realignment that produced the first Republican popular vote winner in two decades. Investors and citizens alike were led to believe in a nail-biter of a presidential race and flip of House control that would likely take a long time and countless court cases to resolve. One pundit suggests that the “political information complex” has been proven to be badly warped. Some traders report that “animal spirits” have been unleashed given the new mandates from voters. But at this writing, we are only a few hours from voting results, digesting commentary from sleep-deprived and self-serving sources.
HJ Sims in the Market for Integrity Charter School
Since our founding in 1935, HJ Sims has advised clients through 23 presidential election seasons with all the twists and turns, hopes and accomplishments, roadblocks and diversions. Through the ups and downs, uncertainties and forecasts, we have come to know how to read our markets and communicate with our accounts in ways that help achieve the goals of our borrowing and investing clients. While most all other underwriters are taking a bye this week, we are in the market with a $25 million California School Finance Authority financing for Integrity Charter School, a K-8 public school rated BB-minus (Stable) by S&P with a 21-year history and 400 students in National City, California. Please contact your HJ Sims representative for more information on this offering as well as for all the bonds that we feature in the secondary market.
Salute to All Candidates and Veterans as We Look Ahead to 2025
To all who stood for elective office this year, we express our appreciation. To those who have been chosen to serve and support our nation’s infrastructure, senior living and care, hospital, school choice, affordable housing, higher education and student housing, and utility providers, we look forward to working with you in the years ahead on initiatives including the restoration of advance refundings. And, as our bond markets will be closed next Monday in honor of Veteran’s Day, we salute all who served our nation and pray that God will continue to bless America along with those who serve to protect our hard-fought, hard-won freedoms.