Market Commentary: Forecasts

by Gayl Mileszko


Ready or not, the holidays are here!  Weather, retail sales and travel forecasts run the gamut once again as we prepare to gather and celebrate with all our loved ones. We think through worst case scenarios and try to figure how we will manage to work around it all. Inevitably we will wring our hands and curse aloud over package and flight delays, no parking spaces at the mall, family members down with the flu and, oh yes, our empty wallets. In the end, we stick to our shopping lists and party plans regardless of all forecasts and warnings. As happens with many women who lose all memory of painful childbirth, we forget how stressful these holidays are – and continue to repeat the shopping and cooking and traveling extravaganza,  year after year, continuing to overschedule, overeat, and overextend only to emerge, exhausted, and in need of isolation if not medication, on January 2.


The Farmer’s Almanac has been predicting the weather for 205 years and claims an accuracy rate of 80-85%. Like the Babylonian astrologers and Benjamin Franklins before them, the folks at the Almanac lay out their expectation for cold and snowy conditions up north and mild and wet or dry conditions down south. This winter they foresee above normal snowfall and colder than normal temperatures except in New England and the Atlantic Corridor. The U.S. coastlines are expected to experience mild to cool weather. These forecasts are always similar to many of the financial market forecasts for the coming year, full of generalizations, exceptions, comparisons to the current year, and sometimes braving a few wild guesses. S&P Global Ratings just came out with its outlook for 2024, expecting the economy to expand 1.5% with resiliency being tested as real interest rates stay relatively high, businesses face higher costs of capital, unemployment rises, inflation falls, and the lagging impact of monetary policy tightening is slowly realized. Its pessimistic scenario sees “mild recession-like dynamics” which sound something akin to gusty winds and snow flurries.

Shop ‘til You Drop

U.S. consumer spending accounts for roughly 70% of the economy, and about 27% of the year’s total is typically spent during the 4th quarter holiday shopping season, with some sectors like toys and games taking in more than 34%.  Predictions over this year’s spending range from “Ho-Hum” to National Retail Federation expectations for record high levels. We already have a $1.079 trillion credit card balance. Twenty-five percent of us are still paying off debt from last year and a third of us will go into debt to buy gifts, entertain and travel this year. Gallup reports that we each will, on average, spend $975 on gifts, up more than $100 from 2022. But total sales in dollars is of course projected to rise due to inflation. The PNC Financial Services Group, which has published the “Christmas Price Index” for 40 years. This year, they estimate the cost of the 12 fabled gifts, starting with a partridge in a pear tree at $46,729, at 2.7% increase over last year. As it turns out, the rare turtle doves have increased 25% in price from 2022, while the cost of nine ladies dancing, eight maids-a-milking, seven swans-a-swimming, five gold rings, and four calling birds are thankfully unchanged.

Trains, Planes, and Automobiles

Other than Santa, few of us travel by sleigh anymore. We tend to drive or fly to gather with our family and friends. Over the Thanksgiving weekend just passed, AAA estimated that more than 49 million traveled by car. And the Transportation Security Administration reported that they screened more than 2.9 million passengers on the Sunday following Thanksgiving, a new record passenger volume for a single day, and 10% increase over 2022. Looking ahead, one survey just cited by Travel + Leisure anticipates 131 million Americans set to travel over the winter holidays with peak days from December 21 to December 23.  Many will be humming to the classic, uplifting songs of the season and others will be tired of hearing them replayed over and over in every venue for the last two months. We find that noise cancelling headphones come in handy when navigating through the big box stores aisles, or traveling by bus, train, scooter, airplane, or in the family car.

Santa Claus Rally

Investors are hoping for the Santa Claus rally that began in November to continue through this final month of the year and far into 2024. Just about everything rallied last month on the expectation that the Federal Reserve is done with rate cutting in this cycle and that cuts will follow in the New Year. It’s as rare as red-nosed reindeer to see such exuberance across the board. Harkening to the Fed speakers, stocks and bonds and commodities all sang out “Do you hear what I hear?” and investors rushed to buy.  Among equity indices, the Dow added 2,898 points, increasing 8.8% in just 30 days, as did the Russell 2000, which added 146 points. The S&P 500 gained 374 points, closing up almost 9%. And the Nasdaq gained 1,375 points, an increase of 10.7%. Silver prices spiked 10.3%, Bitcoin prices jumped 9.8%, and gold prices closed 2.7% higher. Copper, zinc, steel and iron ore all gained.  In the bond markets, the 2-year Treasury yield fell by 40 basis points, the 10-year by 61 basis points, and the 30- year by 60 basis points. The 10-year BAA corporate bond index yield dropped 77 basis points. But it was tax-exempt bonds that heard the loudest jingle bells.  The 30-year AAA general obligation benchmark yield fell by 80 basis points, the 2-year by 83 basis points and the 10-year by a whopping 98 basis points. The new levels were a boon for borrowers, who left the sidelines and rushed to market. November issuance totaled $28.4 billion, up 7.8% from the prior year. The secondary market, on both the retail and institutional sides, surged. Overall trading set a new all-time level and muni returns for the month were the best in 41 years. It was, as many have said, a November to Remember.

Hark, the Year is Winding Down

This is the first full week of trading in December and perhaps the last active trading week of the year, given the central bank meeting next week and holidays to come. U.S. Treasury issuance is tapering off; only six auctions are scheduled. There are no Fed speakers to fuel or quell the rallies, as officials are in a blackout period ahead of the next two-day Open Market Committee meeting that begins on December 12. There is plenty of economic data releases to move markets: ADP, productivity, inventories, consumer sentiment, and the jobs data on Friday. Several key corporations are releasing third quarter earnings including McDonald’s, J&J, and Toll Brothers. Washington is busy trying to reach consensus on several pressing legislative matters before Members of Congress recess for the year on December 14. Hearings with the heads of major Wall Street banks are being held and the House Speaker plans votes on formal investigations related to the impeachment of the President and the Secretary of Homeland Security.

Joy in the Returns

At this writing, most year-to-date returns are positive, a grand relief after the deep losses of 2022. The Nasdaq leads the pack at +37% through December 1.  The S&P 500 is up 21.5%. the BofAML leveraged loan index is up 11.6%, the high yield corporate index has gained 9.80%, convertibles are up 8.78%, preferreds have gained 7.83% and high grade corporate bonds are +5.04%. With a 3.61% boost in November, Treasury yields are now up 1.24% year-to-date. The BBB muni index has returned 6.00%, the index of munis with maturities of 22 years or longer is +5.59%, the non-rated muni index is up 5.89%, and taxable munis are +4.19%. The S&P municipal bond high yield index reports a year-to-date return of 5.38% and its investment grade index shows a 3.58% gain. Investors seeking the safety, liquidity, and high yields offered by money market funds have piled a record $5.83 trillion into these instruments. 

Give us a Jingle

HJ Sims is in the market this week with several financings. We are bringing a BBB rated Lifespace Communities financing in two parts: a $29.8 million Palm Beach County Health Facilities Authority sale, and an $82 million offering through the Iowa Finance Authority. We also plan a $31.3 million non-rated Louisiana Public Finance Authority transaction for Athlos Academy of Jefferson Parish Charter School in Terrytown; under Authority rules, this offering is limited to qualified institutional buyers.

As you deck the halls for all the wonderful holiday celebrations ahead, we hope you will reach out to your HJ Sims representative to discuss these opportunities and share your family and company plans. Let us know how we might help with end-of year tax swaps, final portfolio reviews, or goal-setting for the new year. We remind you that municipal bond investors are due to receive $47.1 billion of principal and interest payments this month.  Our sales, trading, banking, analytic and operations teams stand by to help ensure that these funds are best reinvested to meet your need for an outcome of income.