Market Commentary: Coming Up Roses

by Gayl Mileszko

Coming Up Roses

Watching the annual Rose Parade in Pasadena, California is a New Year’s Day tradition for 50 million people around the world. On January 1, we typically wake late, plunk down on the couch and turn on the TV to slowly and quietly recover from the Eve’s festivities. With one eye open, and the volume on low, we watch the 5-mile procession of floral floats, marching bands, and Budweiser Clydesdales, struck by the bright colors, clever constructions, cheery music, and the majesty of the young rose queen. An estimated 700,000 lined the route this year to participate in the 135th annual event. The theme of the 2024 parade was “Celebrating a World of Music: The Universal Language” and its grand marshal was Tony winner Audra McDonald. By the time the parade ended, we recovered just enough to start on all the appetizers to be consumed with our family and friends during the Rose Bowl game. This time, the classic contest pitted the Alabama Crimson Tide against the Michigan Wolverines. Needless to say, it has been a very happy start to the new year for Michigan — and we hope for you as well.

We Love a Parade

Preparations for the Rose Parade began last June, when volunteers helped to build the cores of the floats that would later be turned into stunning works of art decorated with flowers, seeds and other materials. Contributions this year come from corporations including Honda and UPS, municipalities such as Newport Beach and Fort Lauderdale, non-profits such as Shriner’s Children’s, student -built like Cal Poly Universities, civic groups like the Rotary, private social clubs, religious organizations, and the U.S. Forest Service. The winner of the President’s Award was Kaiser Permanente’s “Symphony of You” float with its 8,000 coral, hot pink and green roses. Next week, for the benefit of our borrowers and buyers, we will float a summary of the diverse array of senior living and charter school financings that we brought, or saw come to market in 2023. 

Parade Grounds

There were many other types of parades last year, and plenty more planned for 2024.  All stun and attract large audiences but not all are worthy of celebration.  For example, there is a parade of illegal, undocumented immigrants coming across our southern and northern borders; a record 302,000 were counted in December with many more thousands of got-aways, known and unknown. Moscow held a so-called Victory Parade last May, and military hardware and troops were paraded as threats by the North Koreans in July and the Iranians in September. The deep divisions among House Republicans, between the political parties, and across the branches of government have been on parade heading into this election year. In 2023, a parade of horribles befell several banks including SVB and well-known companies such as RiteAid, Party City, Bed Bath & Beyond, and WeWork. Members of Congress and wealthy alumni certainly rained on the parade of the presidents of Harvard and UPenn after they dodged questions on campus anti-semitism and, in the case of Claudine Gay, amid nearly 50 instances of apparent plagiarism.  On the other hand, Shohei Ohtani and Ronald Acuna, Jr. had tremendous hit parades, and the Texas Rangers got the kind with ticker-tape.  Paris is planning to reinvent the Summer Olympic with its opening parade of nations this year. And Parade Magazine published a list of the 55 best New Year’s Resolutions for 2024; these included writing down one thing that you are grateful for every night, giving one compliment a day, and avoiding people who complain a lot.

Rose-Tinted Glasses

The financial markets began 2023 with the expectation that there would be a recession, but ended the year with a Santa Claus rally across asset classes and a firm belief that there would be a soft landing if there was to be one at all. Some economists believe that we have already maneuvered through several mini-recessions and that the seemingly inexhaustible strength of consumer spending will continue to bolster our economy. There are still a considerable number that interpret the economic tea leaves as indicative of a something more than a slowdown in 2024, but none of the markets are trading as if there is a big price to pay for our $97 trillion of sovereign global debt on top of the record high trillions in household debt, the years of artificial market interference by central banks, and the unprecedented fiscal stimulus that has skewed sober financial analyses and projections.  Futures trading show that so many, perhaps TOO many of us, are wearing rose-tinted glasses and expecting more rosy outcomes with respect to interest rates, inflation, employment and economic growth without having to pay any type of hefty price for all the money we have printed and checks we have issued.

2023 Parade Route

Those who follow budget deficit data and follow the upward ticking state, federal and global debt clocks continue to sound the alarms. Nevertheless, U.S. markets rallied remarkably in December. Major indices reversed prior losses and ended the year in the black. The Nasdaq at 15,011 gained an astonishing 43% in 2023 but finished 4% or 633 points below 2021. The S&P 500 at 4,769 ended about 24% higher year-over-year, with the Magnificent Seven accounting for two thirds its annual return. The Dow at 37,689 closed up 13.7%. The Russell 2000 at 2,027 rose 15% in 2023 but was still 9.7% below its close two years ago.  Gold at $2,063 an ounce saw a 13% increase in 2023. Bitcoin was one of the best performers of the year with a 153% gain but  is still down 11% from its 2021 level.  In the bond markets, BAA corporate bond index yields fell about 65 basis points year-over-year to finish at 5.79%. Two-year Treasury yields dropped 18 basis points to 4.24% while the 10-year yield ended flat at 3.87% and the 30-year rose 6 basis points to close at 4.02%. Munis ended 2023 with better prices across the board.  The 2-year yield at 2.52% fell 8 basis points, the 10-year at 2.28% dropped 35 basis points and the 30-year benchmark at 3.42% closed 16 basis points below 2022.

Parade of the Unicorns

Every American starts out the year with optimism and hope for better days. For some, the outlooks are always intentionally upbeat. The magic of central bank policies and fiscal stimulus has caused many of us to believe that the government will do whatever is necessary to bolster the markets and keep the rally going.  For others, hopes are dashed early on as we sober up to the cold realities. The latest Rasmussen survey finds that 45% of respondents felt they are “worse off economically” than they were a year ago. Only 34% of adults think “their finances will be better a year from now” and that number may be inflated given expectations for a spillover of the year-end the Santa rally. The financial markets have already thrown some cold water on the year-end gains, adjusting for exuberance perhaps fueled by sugar plums or too much spiked eggnog. There has been a bit of a reversal in most sectors since the start of 2024.  As of Monday’s close, the major stock indices had all retreated:  The Dow, S&P 500, Nasdaq and Russell 2000 were all down. Oil, gold and silver prices have all dropped. Only Bitcoin is up, already over 9% in 2024, possibly on expectations for the approval of a new ETF. In the bond market, Treasuries yields have risen across the board. Five trading days into the new year, the 2-year yield at 4.37% has risen 13 basis points. The 10-year yield at 4.03% is up 16 basis points, and the 30-year at 4.1% closed 17 basis points higher. The 10-year BAA rated corporate bond index yield has risen 16 basis points to 5.95%.  On the tax-exempt side, we saw much less change as municipals outperformed their taxable counterparts in market conditions that reflected significant demand in the face of very light supply. The 2-year AAA general obligation municipal MMD benchmark yield is down 1 basis point to 2.51%. The 10-year yield finished flat five days into the new year at 2.28%, while the 30-year yield at 3.45% has risen only 3 basis points.

Parade of Giants

In the run-up to November elections, Wall Street is monitoring the goings-on in Washington and across the early caucus states with a mixture of concern, fear, confusion, trepidation, and quite a few crossed fingers. Households planning from kitchen tables are also looking for lower rates, lower prices, and no surprises. Many of us prefer divided government but without major gridlock. We crave strong, stable, quiet leadership and we detest heavy regulation, taxation, and anything that adds to the huge pile of uncertainties that we already face in our day-to-day grind.   There are plenty of things to worry about, ranging from the war in Ukraine and Israel, growing threats of terrorism, and the skyrocketing costs involved in housing, feeding and caring for millions of immigrants who are rapidly changing the demographics of our melting pot. We need giants, more giants, men and women of strong ethics and vision, able and willing to take the oath to preserve, protect and defend the Constitution, spur growth, and work hard to tackle our many significant challenges. There is an awful lot at stake. Let us hope that they stand for election this November and let us do all that we can to help them gain office.

Hit Parade

At HJ Sims, we welcome this new year with open arms, and we wish you and your families, colleagues and employees great happiness, health and success. We are perennial optimists. We have grown our investment banking team and have added to the array of products offered to investing clients. We look forward to working with other optimists in the non-profit and for-profit sectors looking to take advantage of the many opportunities for growth and success. There is a big pipeline of refinancing, expansion, repositioning and new construction that has been building for years and we stand ready to partner with you to make yours a big milestone year. Please reach out to your HJ Sims representative to figure out ways to make everything come up roses for you in 2024.