Market Commentary: Eighty-Three

by Gayl Mileszko


Our world is so full of possibilities but it is also unquestionably replete with problems. We all reach out to family, friends, and professionals to help us frame and resolve the ones that vex us most. But sometimes the home, work, health or financial burdens become so overwhelming that we see relief from higher sources.  This brings to mind the old tale of the farmer who was weighed down by constant criticism from his spouse, relentless demands from his ungrateful children, battles with nosey neighbors, crops failing due to bad weather, and aches and pains from years of hard labor.  He took a long trek to seek advice from the Buddha, and laid out all his troubles. When he finished, he looked expectantly to his spiritual leader for solutions and was shocked when the Buddha said that he could not offer much help. The farmer was told that all human beings have 83 problems and that is just the way life is. It is possible to work hard and solve a few of these problems, but new ones will soon crop up and take their place. The Buddha added that he could only help with the 84th problem: misery over the fact that we have problems. Accept that life has problems, he advised, and you will have one less to confront.

Forty Years Ago in 1983

In 1983, forty years ago, the U.S. was starting to emerge from a worldwide recession that sprang from the 1979 energy crisis. Some major problems, like inflation that had recently peaked at 14 percent, were slowly resolved, but new ones arose or persisted. That spring, 30 states reported double digit unemployment. During the year, 50 banks failed and the FDIC listed another 540 as “problems”. The U.S. embassy in Beirut was bombed, killing 63 people. The U.S. invaded Grenada. The Fed’s target rate was 11.00%. The President’s popularity rating fell to 35%. Troubles clearly abounded. But America’s ingenuity, optimism, and irrepressible spirit were on full display.  Microsoft Word 1.0 was launched, Motorola introduced the first mobile phones to the general public, Swatch rolled out their first watches, and McDonald’s expanded its menu to include Chicken McNuggets. ARPANET officially changed to use the Internet Protocol, creating the Internet, Cabbage Patch Dolls generated $1.2 billion of revenue, and NASA Astronaut Sally Ride became the first American woman in space.

Market Movers Amid the Current Wall of Worry

Today, traders find at least 83 opportunities in the market every morning, while creative minds have been up all night birthing the solution to problem number 17 or 28.  Investors can all count on at least 83 problems confronting them during a given session. Inflation, central bank target rates that are still rising, dark cloud of recession hovering over an upside down bond market where short maturities have more value than long ones, a pandemic going into its fourth year,  a war in Europe disrupting trade, artificial intelligence about to change the world in many unknown ways, algorithmic traders and hackers,  geo-political tensions, governments and companies overleveraged, housing bubbles, investigations involving the incumbent and previous president underway, the United States on credit watch for a possible downgrade – these are just a few plastered on the current Wall of Worry. Despite it all, stock market volatility, as measured by the VIX, is well below 40-year averages, and the 10-year Treasury yield at 3.76% is well below the 40-year average of 5.09%.

At the 2023 Mid-Point

At this writing with only a few days left in the month and the quarter, let us take a look at where our major market indices stand mid-way into 2023.  The Dow at 33,727 is up 1.8%, the Russell 2000 at 1,821 is 3.4% higher, the S&P 500 at 4,348 is 13.3% higher, and the Nasdaq at 13,492 has gained 29%. Oil prices at $69.16 per barrel have fallen 13.8% while gold at $1,921 an ounce is 5.3% higher. Bitcoin, at $31,105 has surged 88%. The 2-year Treasury yield at 4.74% has risen 32 basis points, while the 10-year at 3.73% has fallen 14 basis points and the 30-year at 3.81% has dropped 15 basis points. The 10-year BAA rated corporate bond yield at 6.21% is down 23 basis points. On the tax-exempt side, the 2-year AAA general obligation bond benchmark at 2.91% has risen 31 basis points alongside its Treasury counterpart, while the 10-year at 2.53% has dropped 10 basis points and the 30-year at 3.46% is 12 basis points lower.

Attractive Bonds Abound

In the bond markets, it is a picky buyer’s extravaganza and every borrower has a grand stage. HJ Sims was in the municipal market this week with a non-rated limited offering for non-rated Scintilla Charter Academy, a public school in Valdosta, Georgia expanding to serve grades K-9 this fall. The draw-down transaction has a not-to-exceed amount of $23.4 million, and a first draw of $17.2 million with a 10-year tax-exempt maturity priced at par to yield 6.25%. The municipal bond market expects more than $11 billion of new issue sales this week, including a $31.9 million BB+ rated Philadelphia Industrial Development Authority charter school refunding bond issue for Tacony Academy. Tax-exempt bondholders await $37.7 billion of principal and interest to hit their accounts, all available for reinvestment as of July 1. Traders are also sifting through $1.1 billion of daily bids-wanted in the secondary market. Offerings on the Street literally hit a record high of $26.7 billion less than two weeks ago. Bloomberg recently sorted through the universe of outstanding municipal bonds and reported that almost every bond with a 4% coupon is trading at a discount, as are 83% of bonds with coupons between 4% and 5%.

Think Fixed Income

Also this week, there are 10 Treasury auctions with tens of billions of 4-week to 7-year maturities; to fund the budget deficit, one trillion dollars of sales are expected by the end of the year with $2 trillion more to follow next year. There are $15 billion of investment grade corporate bonds for sale in the primary market. More than $1.1 billion of high yield corporate bonds are being offered by issuers such as Caa1 rated Viking Cruises. Our traders are seeing nice taxable yields across the fixed income classes so, while some buyers are distracted by July 4 vacation plans, we encourage you to contact your HJ Sims representative to discuss offerings that meet your investment parameters and income needs going into the second half of the year.

America in 1883 and 1783

There is now a popular Paramount+ Western drama TV series called 1883, but one hundred and forty years ago, America was in the midst of a three-year depression. Real GDP contracted by 3.7%. It was also during this year that the Brooklyn Bridge opened to traffic, the first Life Magazine issue was published, the U.S. Navy authorized the construction of the first steel ships, the first elevated electric train entered service in Chicago, the four American time zones were first established by the railroad companies, and the Mayo Clinic first formed as an emergency triage center. Two hundred and forty years ago in 1783, George Washington issued a General Order announcing the end of seven years of hostilities with Britain, gave thanks to the Almighty, offered congratulations and authorized an extra ration of alcohol to all his troops to celebrate. The first daily newspaper was published in Philadelphia. The first self-winding clock was patented. Spain and Sweden first recognized U.S. independence.

Best Wishes for a Safe and Joyous Independence Day

For all the challenges that our nation has faced then and now, over the decades and centuries, America remains a spectacular, one-of-a-kind, global standard for liberty and an unstoppable force for peace. We are descendants of courageous patriots, confident leaders, hard workers, and clever entrepreneurs. Never underestimate our resilience, never discount our optimism or our belief in the equality of each individual and the power of a dream. On this 247th anniversary of our nation’s independence, the HJ Sims family joins you and yours in celebrating our rich history and continuing force for good in a world beset with problems. God Bless America.

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