By Gayl Mileszko
Market Commentary
Big Time
It’s all very confusing for even the most brilliant macro economist, never mind those of us trying to figure out the trickle-down impacts on our families and businesses. Some look at the newly passed reconciliation bill and see it as the largest middle-class tax cut we have ever seen, a generational win for the American people. Using the 2017 baseline tax expirations, it is said to increase the federal deficit by $3.4 trillion over the next 10 years. But, based on current policy, it can be scored as cutting spending by $2 trillion and reducing deficits by $400 billion. The claims are as polar opposite as they could be: It is utterly insane and destructive, a disgusting pork-filled abomination. No, it is the America First Agenda in action, securing our border and bolstering our national security. It will destroy the safety net, ripping health care and food away from millions of our neediest. No, it puts working families first, and reaffirms that the American Dream is alive and well. It is a big, awful bill, cruel, lacking empathy for our friends and neighbors. No, in fact, it is a blueprint for responsible government, reining in out-of-control spending, restoring energy dominance and turbocharging U.S. economic growth. It guts Medicaid to benefit billionaire donors. No, it roots out hundreds of billions in waste and bureaucratic mismanagement. It jeopardizes our children’s and grandchildren’s financial future. No, it ends the green boondoggles, expands school choice, and protects family farms. It lays waste to rural hospitals and will make millions of jobs disappear; people will get sick and die. No way, says the President; it is the most popular bill ever signed in the history of our country.
Big Beautiful Bill
The One Big Beautiful Bill Act, H.R.1, was signed into Public Law 119-21 on July 4 and the spin masters have since been hard at work. The whole effort has been dizzying all year long, in fact dating back to the 2024 elections. Hundreds of different “fact sheets” are now being circulated to thrill or scare those of us who were more focused on celebrating the July 4 holiday than following the Senate version of the bill that finally squeaked through the House. The massive legislation, now law, reforms everything from taxes and healthcare to education, immigration, defense, energy, agriculture, and transportation. The truth is that most of us will not really notice any change at all, at least not until after the mid-term elections when many of its provisions take effect — unless we are a whaling boat captain, REIT subsidiary, jail warden, waitress, top bracket homeowner in a big blue state, or Ivy League college. And even then, impacts might yet be tempered because there will be a technical corrections measure, one or more appropriations bills, and as many as two more reconciliation bills– one in October and one next April. We do not know who all was promised what to get this big bill over the line, but for sure there is more to come. How much more beautiful will it get?
Big Wait and See
The media have been quick to pinpoint some of the bizarre provisions, the “pork”, inserted to gain the votes of certain members of Congress and trade groups. Yes, even the nation’s pork producers are happy. But so are those of us who fought to protect tax-exempt bond financing. The program responsible for the majority of our nation’s infrastructure has not only been spared, but it has been slightly expanded now to include spaceports. And we may see more school building and expansion projects as a result of the new tax credits for scholarship donations. Some alarms have been raised, and we have our concerns, about the potential impacts on skilled nursing, assisted living, hospitals facing a possible surge in uncompensated care, and states with less flexibility to assume several new cost-sharing burdens. Along with the rest of the country, we will wait and see. Most of the 887-page bill was written in arcane language with unreadable references to current law, so it will take months to be translated into terms we can understand and relate to. States, many of which just enacted their own annual budget bills by the July 1 fiscal deadline, may need to consider, debate, and announce any necessary spending adjustments. And Treasury officials will soon need to begin writing regulations and issuing guidance on scholarship donation credits, deductions for overtime and tips, and much, much, more to literally put the new law into effect, a massive task that will take more than a year in some cases.
On A Big Roll
If 2025 were on the Richter scale, the magnitude of seismic activity in and around the White House would be off the charts. The Trump Administration is on quite a roll. The President truly has an iron grip on his party, the national agenda, and indeed several foreign ones. The reconciliation bill is only the latest in a string of political victories that are reshaping the Washington employment and regulatory environment, reversing major fiscal policies, testing the limits of executive power, strengthening NATO and its member nations, demonstrating American force, and fostering peace. On the apparent “To Do” list: finalizing tariff policies, installing a new central bank chair willing to lower rates, launching a sovereign wealth fund, and brokering peace in Ukraine and the Middle East, among other stunners.
A Big Year
The municipal bond market is also on a roll. The MSRB estimates June issuance at nearly $66 billion, and year-to-date volume at $297.8 billion, more bonds in six months than we saw in all of 2014. Investors received about $40.5 billion of principal and interest on July 1, and another $13.2 billion will arrive by the end of the month. August will see even higher payments to bondholders. Funds have taken in 10 straight weeks of net investments; we saw $959 million of inflows last week alone, $345 million of which went into the high yield sector. Tax-exempt money market fund assets now total $139 billion and the 152 muni exchange traded funds now hold $152 billion. Yields are in a range that strongly appeals to individual bond buyers and those with separately management accounts. The 2-year AAA general obligation benchmark yield stands at 2.46%. At this writing, the 10-year yield at 3.22% is up 16 basis points in 2025 and the 30- year yield at 4.55% is up 65 basis points.
Big Swings
After seeing swings of 26% this year, the S&P 500 is currently up by 7.49%. High yield corporate bond indices are 4.72% higher, investment grade corporates are up 3.99%, and U.S. Treasuries are up 3.18%. Most muni bond investors happily clip and reinvest their tax-exempt coupons, but for those focused on returns alone, munis are at the bottom of the asset classes in 2025. Muni performance is good for investors who count on that tax-exempt quarterly or semi- annual income. However, for those who follow the indices, taxable munis are up 3.15% as of July 3. Bonds with 3- to 7-year tenors are up 2.21%. But general investment grade muni index returns are negative 0.57% and even high yield returns are at negative 0.53%. Triple-A munis have lost 0.65% year-to-date, and munis 22 years and out are down 3.45%.
Thinking Big
Traders, issuers and investors are analyzing how reconciliation bill changes will impact revenue and operations. Large private college endowments are looking at a higher excise tax on investment income. Health care providers and state program administrators are examining new eligibility, work and reporting requirements, the new $50 billion rural health fund, and the delay of the federal nursing home staffing rule until FY35. Spaceports from California to Florida look forward to accessing the tax-exempt market. Affordable housing developers are reviewing the expanded low-income housing tax credit and enhanced benefits for properties in rural and tribal areas. Investors in high tax states will enjoy a higher SALT deduction and some will celebrate the permanent extension of the current individual alternative minimum tax.
Big Deals
This week, HJ Sims came to market with a $72.5 million non-rated New Hope Cultural Education Facilities Finance Corporation financing for Legacy Midtown Park in Dallas. We priced the final maturity in 2056 with a 7.125% coupon to yield 7.15%. The Massachusetts Development Finance Agency also just sold $256.1 million of non-rated bond for Care Communities with 2060 term bonds priced at 6.50% to yield 6.625%. And the Utah Charter School Finance Authority had a $24.3 million AA rated sale for American Leadership Academy that included maximum yield bonds at 5.17% in 2055. Last week, the Oregon Facilities Authority issued $5.8 million of non-rated bonds for Salem’s Valley Inquiry Charter School due in 2055 priced at 6.75% to yield 6.875%.
Big Questions
This is a relatively quiet week for economic data, Fedspeak, and Congress. The minutes of the June FOMC meeting will be released, and there are only 2 Fed officials on the public circuit. But there are 10 Treasury auctions, including a 10-year and 30-year which always draw global attention. The House is out of session until July 14, and the Senate plans to begin consideration of the President’s $9.4 billion bill rescinding funds for public broadcasters, climate projects, and the Agency for International Development. The firm deadline for passage is July 18, or the opportunity to claw back these funds expires. Futures traders, slightly surprised by the strong jobs report last week, revised projections for rate cuts down from three to two this year; quarter point cuts are now anticipated in September and October. Although there is so much uncertainty on the outcome of tariffs and the good/bad impacts of H.R. 1, investor sentiment as measured by the CNN Fear and Greed Index has recently shifted into the Extreme Greed range. Markets may be underestimating the short- and long-term impacts of H.R. 1, tariff and nuclear weapons talks, but both stocks and bonds are rallying at this writing.
Big Help
There is a ton of data and opinion circulating right now on matters that directly impact your investing and borrowing decisions. We are reminded of a quote from a favorite author, Douglas Adams, who wrote in 1979: “Nothing travels faster than the speed of light, with the possible exception of bad news, which obeys its own special laws.” We might add that “fake news” tends to travel even faster these days since we now live in an era not only turned upside down by the internet and social media but now also by artificial intelligence. There is such incredible hope for the promise of AI on so many levels, but real dangers present. One AI clone just impersonated our Secretary of State and messaged not only U.S. officials but foreign ministers as well. Reach out for help from your HJ Sims representative to help you sort through all the noise and guide you through the next half of this big year of change.