Market Commentary: Arrivals

by Gayl Mileszko


The President of the United States just submitted his annual budget request to the Congress for Fiscal Year 2025 which begins this October 1. It was late, but so are the federal spending bills for FY24, now nearly six months behind schedule. The Administration’s budget proposal was immediately deemed “dead on arrival” on Capitol Hill, like every annual submission from the head of the Executive Branch. The Constitution gives the Congress the “power of the purse,” and the exercise of that power is exhausting and highly political, particularly in a presidential election year. House and Senate committees hold months of hearing to rearrange line items and place conditions on the White House’s use of these funds. This year so far, they have set in place about $460 billion of spending for departments including housing, agriculture, transportation, justice, interior, commerce, energy, and veterans’ affairs, with an estimated 6,600 special earmarks totaling $12.7 billion.  A race against the clock is now underway to fund the remainder of the government, notably defense, homeland security, and health and human services, spending authority for which expires on March 22 without further action.

Gold and Bitcoin Arrive at New Highs

Behind all the fiscal year budget proposals and appropriations bills are the estimates of the current year’s deficit ($1.91 trillion) and national debt ($34.5 trillion). The sheer enormity of the red ink is really starting to rattle central banks and investors alike. India, China and Turkey have all been increasing purchases of gold in lieu of U.S. Treasuries, causing prices to rise to levels not seen before ($2,179/oz). Investors in their search for hedges against inflation and global events have driven the price of Bitcoin to new all-time highs ($73,274), and its market cap at $1.4 trillion now exceeds that of the entire high yield corporate bond market. These matters are prime topics for kitchen table talk but few politicians dare raise them in an election year.

Arriving at Majority Delegate Counts

With Super Tuesday now behind us, and the two frontrunners having all but clinched their respective party nominations this week, we are plowing through the remaining state primaries and heading straight for the summer conventions. On Tuesday, we had votes in Georgia, Maryland, Washington state and Mississippi. Next week’s contests include Florida, Arizona, Illinois, Kansas and Ohio. But there are a number of congressional hearings and court actions scheduled between now and the big Republican gathering in Milwaukee this July and the major Democratic event in Chicago the following month. Pundits around the world delight in speculating at a wide variety of outcomes. Thirty-eight states and the District of Columbia currently allow some form of betting, including 29 with online wagering in sports. None yet offer political betting, but Nevada and West Virginia have received requests so – for better or worse — we may see some type of legalization by the time of the next presidential election in 2028.

New SEC Climate Risk Reporting Rule Arrives

Just in time to spice up this year’s policy debates, the SEC has released a new climate disclosure rule requiring public companies to report emissions from their operations and energy purchases as soon as next year, a mandate that ten state attorneys general contend is beyond the statutory authority of the agency. Some corporations as well as nonprofit borrowers have long been voluntarily disclosing climate- and weather-related risks in offering documents since hurricanes in the Gulf, or tornadoes in the Midwest, for instance, can have a major adverse impact on school buildings and the lives of nursing home residents. But municipal issuers are closely watching developments with the lawsuit and the rule, wondering if they may be the next target of regulators.

Inflation Reports Arrive This Week

The Bureau of Labor Statistics released the February consumer price index reports on Tuesday, and inflation stubbornly remains above the Federal Reserve’s target of 2%.  The rate of inflation rose by 3.2% year over year for all items measured, and by 3.8% for all items less food and energy. Both came in higher than expectations, and reflected increases in categories including rent, used autos, air travel, apparel, and car rentals. The reports, coming just eight days ahead of the next Federal Open Market Committee, point to more likely delays in cutting rates from the 23-year high. However, markets warmed to the words uttered by Fed Chair Jay Powell in his semi-annual congressional testimony on monetary policy that interest rate cuts “can and will begin this year.” Futures trading at the time of this writing shows the probability of three quarter-point reductions this year, beginning in June. The latest produce price index is expected on Thursday but, since the Fed is in a blackout period, we will hear no more from central bankers on this topic until the Chair’s press conference and new dot plot release.

Departures from the Norm but Soft Landing Still Expected

Markets not only anticipate multiple rate reductions but hold out expectations they will come alongside a “soft landing” rather than in response to a recession.  Of the S&P 500 companies reporting recent quarterly earnings, only 47 cited the term “recession” during their earnings calls, well below the 10-year average of 62%.  Covid-era repercussions and stimulus are clearly skewing much of our economic data, so it is hard to use historical yardsticks to draw conclusions about where we are headed. Some economists argue that we have not yet felt all the damage from the 525-basis point increase in rates that hit us within a 17-month period. And indeed, there are numerous distress signals, including the fact that our national debt is rising by $1 trillion every 95 to 100 days and there is for the first time near parity on the amount of household mortgage and non-mortgage (credit card, student loan) debt outstanding. We are seeing the increasing use of Buy Now Pay Later arrangements for daily essentials.  The M2 money supply has fallen for only the fifth time since 1870.  The 10-year Treasury yield stands at about 117 basis points below the Fed funds rate, which in 2001, 2007 and 2019 presaged recessions. The unemployment rate has increased, retail sales are stagnant, stock prices are inflated, money market assets are at record highs, corporate earnings are lower, and corporate default rates are rising.  Nearly one quarter of seniors aged 65 and over have only $10,000 to $20,000 of annual income.  Seventy two percent of Americans living paycheck to paycheck have $2,000 or less in savings.


There are significant differences between how Wall Street and Main Street view all that data right now. There are even some notable contrasts between how stocks, bonds, commodities, and alternatives are behaving. As of the close on Friday, stock market volatility is up 18% this year and the S&P 500 and Nasdaq are more than 7% higher. Oil prices are up 9% since the start of 2024, gold prices have risen 5.6% and Bitcoin has skyrocketed more than 63% while natural gas and steel have plummeted by 28%. The 10-year BAA corporate index yield at 5.92% is up 13 basis points. Treasury yields are more than 20 basis points higher: the 2-year stands at 4.47%, the 10-year at 4.07% and the 30-year at 4.25%. Investment grade municipal bonds are outperforming U.S. Treasuries. The 2-year AAA general obligation benchmark yield at 2.71% has increased 19 basis points, the 10-year at 2.40% is up 12 basis points, and the 30-year at 3.57% is 15 basis points higher. Year-to-date, the investment grade muni index has returned 0.16% versus the US Treasury at negative 0.49% and investment grade corporate bonds at negative 0.07%. High yield corporate bonds are up 1.06% while high yield munis have returned +2.25% thus far.

New Senior Living Data Arrives

We have an $11 billion municipal calendar this week including one Idaho charter school financing for Treasury Valley Classical Academy, but no senior living deals are scheduled. Only three senior living issues have come to market this year so far, although there have been 11 drawdowns reported on prior series of bond issues. There were a number of valuable discussions on rates, lending and other trends at the Spring NIC conference in Dallas last week.  This week, we are reviewing the latest Genworth Cost of Care survey reporting that the cost of a private nursing home room rose 4.9% in 2023, and the hourly rate for home health aide services increased by 15.38%. In addition, the average rates for assisted living facilities rose 18.9% from 2021 to 2023.  Occupancy continues to rise across all levels of care as seniors find true value I community life. We welcome the announcement from Seniorly on their first “Best of Senior Living,” awards, and congratulate the 334 communities singled out for exceptional overall resident satisfaction.

Springs and Swings

Along with many winter weary Americans, we anxiously await the arrival of Spring next Tuesday, with all the uplifting photos of cherry blossoms peaking in the nation’s capital. Washington’s process of investigating and legislating is never so pretty, however. This week on Capitol Hill, we follow hearings in which special counsel Robert Hur testifies on President Biden’s handling of classified materials, Members study the proposal for an $8-per-month cap on credit card fees, Congress is briefed on the U.S. fiscal situation and worldwide threats, and the House votes on a bill that could lead to a Tik Tok ban. We follow the outcome of nine Treasury auctions, corporate earnings reports from firms including Kohl’s, Dollar Tree, and Dick’s Sporting Goods, and corporate bond sales that may exceed $50 billion for the fourth consecutive week. We eagerly await the announcement of the field of 68 for March Madness so that we can build our brackets, and check to see if teams other than Dartmouth vote to unionize. This is the one-year anniversary of the Silicon Valley Bank seizure, the fourth anniversary of the Covid pandemic declaration, and the 15-year anniversary of the low point in the 2009 financial crisis.  We invite you to contact your HJ Sims representative for help in blocking out some of so much sturm und drang, sticking to your strategy, and meeting your long-term needs and goals in a market environment that, like the NCAA tournaments, may see some big surprises and wide swings before and after the November elections.