HJ Sims Market Commentary: Habits of Excellence

by Gayl Mileszko

We are what we repeatedly do, wrote the historian and philosopher William Durant. He lived to be 96 but, by the time he was 41, the North Adams, Massachusetts native had concluded that excellence was in fact not an act but a habit.

Bestselling author Malcom Gladwell postulated that it takes 10,000 hours of practice to become a master performer. Other research indicates that, for most of us below the master level, the best way to get better at something is through deliberate practice guided by an expert, skilled coach or mentor, intentionally pushing yourself out of your comfort zone to get closer to your goal. Summer Olympians in Tokyo right now have a lot of insight to offer us. So do your HJ Sims representatives.

Time for New Habits

Eighteen months into a health crisis described as the worst in more than one hundred years, we have all developed new habits, some productive, others unhealthy, some boring and selfish, others self-sacrificing and rewarding. Perhaps we have learned a new language or musical instrument, adopted a rescue dog, volunteered at our library, taught an auto mechanics class, or decided to run for public office. More likely we have self-isolated, become sedentary, shopped excessively on line, worked much longer hours, abandoned old friendships, and repeatedly lost our temper with those closest to us. The U.S. economy is clearly recovering, spurred by the most healthy, optimistic and enterprising among us, but it remains hampered by countless uncertainties, sky high prices, conflicting directives, unwelcome restrictions, viral variants, and supply hiccups. We recently learned that the coronavirus-driven recession technically ended in April of 2020 after just two months but we have no idea when the scourge will end. So, there is still time to develop new habits and commit to strive for an excellence in us that endures long beyond this pandemic.

How do you want 2021 to end for you, your family, the people who rely on you?

Here in mid-summer, we are now well into the third quarter of 2021. We may be distracted by plans for vacation, overdue medical appointments, a job hunt, the imminent return to school and office, the purchase or sale of a home, loud media headlines. Maybe we are just stuck in own familiar routines. For investors, this is the right time for a serious and thorough portfolio review, for a discussion with your broker, adviser, or banker. How do you want 2021 to end for you, your family, the people who rely on you? It is time to dust off your goals, take a fresh look at your situation, update your strategy, seek some outside perspective, and get back on the right track.

Turn Around Underperforming Accounts

Prices are elevated across the board as wads of cash sitting in money market accounts await reasonable investment opportunities. Refinitiv Lipper reported that $15.44 billion was added to near-term mutual fund instruments in the last week as negative net supply for municipal bonds alone ticked up to minus $24.5 billion. Virtually nothing appears reasonable, but there are always some gems to be found with the help of the right experts. We at HJ Sims can help. This is the time to discuss any concerns you may have about income, rates, inflation, capital needs and investment risks with your HJ Sims representative. Update your investment strategy, shine a light on any underperforming accounts and get help from us to move them and turn them around.

Federal Reserve Guidance and Market Trends

There is always the possibility of the unexpected but, absent another black swan event, listen to the forward guidance being provided by the Federal Reserve and assume that rates will remain roughly in the current range through early 2023 and that monetary and fiscal policy will remain supportive of business conditions. Make it a habit to stay on top of trends including fund flows, issuance and offering volumes, trade activity and size levels, global central bank activity, and political risks that always arise toward the end of the federal fiscal year. Look under the hood and become as familiar with the fundamentals of your holdings as the contents of your kitchen cabinets. And assemble or re-assemble your own “kitchen cabinet” of investment, legal, accounting and other key advisers.

Current Market Conditions

Financial markets are closely following a dizzying array of developments here and abroad. These include Delta variant cases, the status of approvals at the Food and Drug Administration, statements by the Centers for Disease Control, provisions in the so-called bipartisan infrastructure bill moving through the Senate, and the converging deadlines for government funding and the debt limit. There are second quarter corporate earnings reports, volatility in Chinese markets as a result of new party policies, supply chain issues, and daily economic indicators. Inflation is at a 30-year high but categorized by the Fed chair as transitory. The Fed does not meet again until September 22 but bank officials are out singing from a few different hymn books on everything from the timing of rate hikes and tapering, to climate and digital currency. There is a lot of charter about whether Jerome Powell or Lael Brainard will have the top spot next February.

July Returns

In the meantime, with 11 major sovereign yields still at or below zero, U.S. stocks and bonds remain highly attractive. Year to date through July 31, the S&P 500 has returned 17.98%, the Dow is up 15.31% and the Nasdaq has gained 14.26%. As reflected in the ICE BoAML indices, high yield municipal single family housing bonds are up 14.87%, CC rated munis have gained 13.42%, high yield multi-family housing bonds have returned 11.76%, taxable BBB rated munis have gained 11.37%, and zero coupon bonds are up 5.98%. Despite frequent Treasury rallies, the U.S. Treasury is down 1.38% so far this year. Investment grade corporate bonds are basically flat on the year at 0.14%, while high yield corporate bonds have gained 4.07%. Investment grade munis are up 2.12% while high yield munis are returning 6.13%. Taxable munis maturing in 10-15 years are up 4.86%, Triple-A munis have gained less than 1% and AA rated munis are up 1.39%. BBB munis are returning 5.48%, and within that rating category, higher ed bonds are up 6.4%, airport bonds are up 5.5%, transportation bonds have gained 5.2%, and hospital bonds +4.9%.

On July 30, the last trading day in the month, the Dow was up 14% to 34,935. The S&P 500 was up 17% to 4,395. The Nasdaq gained 13.8% to finish at 14,672. And the Russell 2000 closed 12.7% higher at 2,226. Oil prices have increased by 52% to $73.95 a barrel. Gold prices are down 4% to $1,814. Silver prices are down more than 3% to $25.49 while Bitcoin has gained 44.5% to 41,310.

On the bond side, 2-year Treasury yield closed last Friday at 0.18%, up 6 basis points since the start of the year. The 10-year at 1.22% has gained 31 basis points, and the 30-year at 1.89% is up 25 basis points. Ten-year Baa corporate bond yields at 2.87% are up 22 basis points in 2021. Munis have consistently outperformed their taxable counterparts this year. Two-year AAA muni general obligation bond yields have dropped 8 basis points to 0.06%. The 10-year muni is up 11 basis points to 0.82%, and the 30-year benchmark is flat at 1.39%.

August’s Negative Net Municipal Bond Supply

This week, the first trading week of August, investors can expect about $9 billion of new muni issuance, of which $1.7 billion will likely be taxable. Last month’s total volume was $31.9 billion, bringing year-to-date sales to $263 billion. It sounds like a lot, but the amount is paltry when measured against the amount of investable cash from coupon income, bond calls and principal redemptions, not to mention added demand from those fearing higher taxes and foreign investors desperate for positive yield. The net negative supply is bound to keep interest rates and yields at historic lows almost regardless of what the Fed does and how Treasuries behave during debt limit gymnastics that we have not seen in two years since the limit was suspended. Despite the extraordinary borrowing conditions for nonprofits, many issuers are reluctant to add more debt until they know how much, if any, more they may get from the Washington stimulus already passed or additional grants in the works by formula or earmark.

Lifespire of Virginia

HJ Sims clients are being offered $83 million of BBB rated bonds for Lifespire of Virginia, an obligated group that operates four Life Plan Communities with a total of 763 independent living units, 203 assisted living units, 82 memory care units and 227 skilled nursing units. We are underwriting 2021 bonds which are being issued to acquire The Summit in Lynchburg, refund outstanding bank debt, and develop additional independent living cottages at the Lakewood and The Culpeper communities.

For further information on this financing and others on our forward calendar, as well as for assistance with your mid-year portfolio review and investment strategy, please contact your HJ Sims representative. We aim for amazing and help you strive for excellence.

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