Market Commentary: Countdown

By Gayl Mileszko

Countdown

Elementary school students are most often introduced to the concept of prime numbers in the fourth grade. Some become fascinated by the challenge of identifying the largest such number, divisible only by itself and by one, and continue the search long after their formal education ends. There are precisely 168 prime numbers between 1 and 1000, but after that you really need more than a pencil and paper to find one. A group of amateur mathematician volunteers known as the Great Internet Mersenne Prime Search (GIMPS), named after French monk Marin Mersenne who studied these numbers more than 355 years ago, has been using personal computers and video cards to discover extremely large prime numbers. The largest, confirmed just this month by a 36 year-old former NVIA employee from Alabama named Luke Durant, has 41,024,320 digits. The number, known as M136279841, representing the 52nd Mersenne prime, was discovered using free software and a supercloud system of GPU servers spanning 24 data centers in 17 countries.

Poll Numbers

Large prime numbers are used by banks and messaging services in cryptography algorithms needed to protect data, but have few other practical applications. Many of the numbers being tossed around in today’s election season also turn out to have no value outside of pure entertainment. Campaigns are paying large amounts of money to pollsters to produce surveys indicating how far they are ahead or behind so that they can better allocate resources. Methods vary widely: canvassing by zip code, registered voter lists, and/or random digit dialing, for example. But sample sizes can be significant, questions can be tilted in favor of one candidate, responses may not be truthful or representative, and those polled may never actually cast a vote. Roughly a third of eligible Americans do not vote in presidential election years. The 2020 presidential polls were said to be the most inaccurate in 40 years, and came on the heels of the 2016 polling debacle. Media are nevertheless quick to spread various poll results, footnoting margins of error, but often picking and choosing among the dozens of polls to support their narrative. The spin accompanying some poll results often emphasize that one candidate is clearly well ahead and most likely to win, causing some would-be voters to stay home since their vote would not seem to matter.

Prediction Markets

One new development this year has emerged an alternative to polling, and may prove more accurate. Platforms including Kalshi, Robinhood, Interactive Brokers, and PredictIt, allow certain bettors to place real money on the line to back their predictions on events and outcomes, including U.S. elections. In previous years, political gambling was prohibited in the U.S and was available only in offshore markets. But an appellate court ruled in favor of a suit filed by Kalshi against the Commodity Futures Trading Commission, which opposed this type of retail online trading. The Kalshi platform may now be accessed via the Apple App Store. There may be further court appeals but, for now, prediction markets are open and may prove to boost voter turnout in groups that are typically disengaged from politics. Volume is still relatively light in the context of all legal markets, and federal and state regulations are still evolving, but voters and candidates are following these new markets closely.

Wall Street Stakes in Election Outcomes

Economic historians report that Wall Street traders have been making some form of election bets since the 1880s. Millions of dollars are contributed to one side or another, sometimes to both sides. Policy outcomes on everything from taxes to energy to defense spending have a huge impact on individual stocks, bonds, and commodities as well as financial markets as a whole. Major Street fundraisers are often rewarded with key positions in the Administration, influencing policy and regulations for several years. At the top of the list of horrible outcomes is, however, a sweep by one party, which usually points to major change. Markets detest uncertainty and upheaval; investors traditionally prefer divided government which tends to preserve a familiar landscape and produce little, if any, change. In early 2025, however, there is no way of avoiding the uncertainties inherent in tax reform, the debt limit, government funding, Treasury sales needed to fund the deficit, and Fed policy.

Market Volatility by the Numbers

Numbers reflecting bond market volatility have hit 2024 highs. The MOVE Index stands at 131.87 at this writing, more than 70 percent above the 10-year average of 77.21. We have seen some major adjustments in the Treasury market as traders start ruling out a significant reduction in rates in the near term. Given a series of “Goldilocks” data – not too good, not too bad overall but with some very strong and some recession-level reports— some doubt exists as to whether the Fed will cut rates at all next week when they meet after the election. Futures markets still assign the probability of quarter point cuts in both November and December, but are doubtful about January. We have no indications from normally loquacious Federal officials due to the quiet period imposed ahead of the Federal Open Market Committee meeting next Wednesday and Thursday.

Municipal Yields Higher

Municipal bond yields have risen rapidly alongside Treasuries, whose yields jumped the most since 1995. Last week the 2-year AAA general obligation yield rose 18 basis points and has since risen more; at this writing, it stands at 2.69%. The 10-year ended the week 19 basis points higher and currently stands at 3.01%. The 30-year finished up 16 basis points and now stands at 3.87%. The calendar remains fairly heavy at $13 billion this week, about the same as last week, more than 40% above the 52-week average, as borrowers try to lock in good rates ahead of next week’s pause during Election and Fed Week.

HJ Sims in the Market for Lifespire

HJ Sims came to market last week with a $168.8 million BBB rated deal for Lifespire of Virginia, the obligated group operating five life plan communities in the Commonwealth with 1,435 units. We priced the 2054 term bonds with a coupon of 5.50% to yield 4.875%, and two sub-series of entrance fee principal redemption bonds with coupons of 3.90% and 4.10%. The bonds met with strong demand on Thursday despite the jittery market conditions earlier in the week fueled by factors including the possibility of no rate cuts in November, polls pointing to what might lead to more fiscal stimulus, higher tariffs and deficits under a new Administration, and data showing existing home sales at a 14-year low.

Market Movers This Week

Although risks are elevated across many market sectors heading into what is likely to be the biggest market-moving events of the year – elections and the semi-final Fed meeting – our sales and trading teams remain active in the primary and secondary markets. Our analysts are monitoring the results of this week’s 11 U.S. Treasury auctions, economic data including job openings, consumer confidence, the first look at third quarter GDP, personal consumption expenditures and, of course, the October jobs data coming out on Friday. Our bankers are preparing a number of financings for market entry while sponsoring and speaking at a number of events at the 2024 LeadingAge Annual Meeting & Expo and planning for charter school conferences in Florida, California, and Arizona.

You Have Our Number

We encourage you to reach out to your HJ Sims representative this week or next discuss your needs and market concerns. Since our founding in 1935, we have been advising clients through 23 presidential elections and each and every market cycle. Let us work with you to make sure your plans and portfolios are in prime shape as we head into the final months of the year. We do not know if the 60th quadrennial presidential election will result in a landslide, a squeaker, or a victory eventually determined by the Congress or Supreme Court. We do know that this election will not turn out as did the first one in 1789 — with a unanimous vote by electors – and so all of our votes count. No matter the outcome, we will remain proud of our work for you in the best financial markets and greatest country in the world.