Market Commentary: Leftovers

by Gayl Mileszko


Sadly, all the wonderful, delectable leftovers from last Thursday’s feast are gone. Not a crumb remains except for that fruitcake we will have to regift next month. Given the average per-person cost of the holiday meal, we had to juggle to have the just right amount for the table plus enough for nibbling the next day.  Some of us got smaller portions than in past years while others were overserved once again. In the big picture, about 50 million pounds of sweet potatoes and 80 million pounds of cranberries were consumed on Thanksgiving Day, and more than 46 million turkeys were sold.


It is not easy for turkey farmers to forecast the exact sizes and parts that fickle consumers will need in a given year. In perhaps what was the most colossal miscalculation back in 1953, C.A. Swanson & Sons found themselves with 260 tons of unwanted frozen birds. To keep them from thawing and spoiling, the turkeys were loaded into ten refrigerated railroad cars that shuttled from its Nebraska headquarters to the East Coast and back while the company worked feverishly to come up with ideas on what to do with them. Airlines were already serving complete frozen meals and Swanson already manufactured frozen oven-ready chicken and turkey pot pies. A salesman named Gerry Thomas reportedly suggested a full meal for the retail market:  a frozen dinner that could be cooked and served on an aluminum tray with three compartments. Swanson swiftly ordered 5,000 trays, recruited an assembly line of workers with spatulas and ice cream scoops, and created frozen meals with turkey, cornbread dressing, gravy, peas and potatoes marketed as TV dinners for 98 cents apiece. With a massive advertising campaign that coincided with the explosion in television sales, it forever changed the eating habits of Americans. Ten million of these dinners were sold in 1954, and 25 million in 1955. Thomas says he was given $1,000 and a promotion.

Powerful Brands

Languages around the world have proverbs about how good can result from negative or vexing situations.  In English, we say “If life gives you lemons, make lemonade”. In Yoruba, it is said “The same rain that fell on the bitter leaf also fell on the sugarcane.” Swanson has faced plenty more challenges and opportunities over the years. The company was bought out by Campbell Soup Company. Several business lines were later acquired by Pinnacle Foods and Conagra. Aluminum trays were replaced with paper once the microwave oven became affordable. But the brand is still powerful and, to this day, every grocery store has shelves dedicated to its broth, stock, pot pies and frozen dinners.


The financial markets make gallons of lemonade every day. They have proven resilient in the face of terrorist attacks, rate hikes, tax reforms, heavy regulation, pandemics and epidemics, bank failures, high unemployment, inflation, hurricanes, global recession, new technologies, oil embargoes, supply chain breaks, crop failures, bubbles, defaults, bankruptcies and numerous other capital shocks. Every day presents a new challenge and we face more than a fair share at present. Two wars, crushing debt loads and deficits, widening gaps between rich and poor, unaffordable housing, stark political divisions, millions of illegal immigrants, drug addiction, and a pervasive loss of faith in institutions but expectations that the government will bail us out of any trouble that we might encounter.  

A Year of Upheaval

2023 is rapidly coming to a close. It has been quite a year, one that started with an inflation rate of 6.5%. The Federal Reserve has hiked rates four times, with another quarter point increase still possible. A standoff over the $31.4 trillion debt ceiling that led to a rating downgrade and negative outlook. A House speaker elected on a 15th ballot then ousted months later for the first time in U.S. history, with a successor not elected for 22 days. A Chinese spy balloon that traveled unimpeded for 7 days over the US. Suspicious factory explosions and train derailments. Multiple union strikes. Treasury issuance through the first 10 months of the year totals $18.3 trillion, up 32% year-over-year. The M2 money supply still fueling inflation totals a whopping $20.7 trillion. Investors have plowed $1.1 trillion into safe, liquid, 5% yielding money market funds, bringing combined assets under management to a record $5.76 trillion. The Treasury yield curve has been inverted since July 5, 2022. The municipal yield curve has been partially inverted since December 9, by far the longest time on record. A former president is facing 91 felony counts, and the incumbent president the subject of an impeachment inquiry.  Supreme Court actions have repealed affirmative action and blocked student loan forgiveness. The horrific attack on Israel by Hamas, the hostage taking, the angry rallies and disruptive protests, and clashes over ceasefires have the world grappling with the basic conception of war conduct. So how have U.S. markets reacted to all this upheaval?

Don’t Look Back

As they say in Maori,“Turn your face to the sun and shadows fall behind you.” Operating under the belief that the Fed’s rate hiking would soon come to an end, rallying on good economic data, often revised the next month, and overlooking all the indicators pointing to economic weakness, the VIX measure of volatility has dropped 42% since the start of the year, and the bond market volatility indicator has fallen 12%. The S&P 500 index is 19% higher, the Nasdaq is up 36%, and Bitcoin has gained 129%. The bond markets have not rallied as expected after last year’s heavy losses. The 2-year Treasury yield at 4.94% is 46 basis points higher. The 10-year at 4.46% is up 59 basis points. The 30-year at 4.59% has increased 63 basis points. MMA reports that municipal bonds are currently shattering records dating back to 1990, with November returns exceeding 5% and significantly outperforming Treasuries. We will soon see how this month ends for tax-exempts, but yields are still higher than they were back in January. Investors have continued to add to municipal  ETFs for the 9th straight week. The 2-year AAA general obligation benchmark yield at 3.09%, however,  is still up 52 basis points year-to-date;  the 10-year yield at 2.94% is 31 basis points higher, and the 30-year yield at 4.00% has increased by 42 basis points.

Looking Ahead

This week, there will be 10 Treasury auctions, the increasing sizes of which are now a major focus of Wall Street dealers who are taking down larger percentages. Seven Federal Reserve Bank officials are delivering remarks but attracting less attention as the focus turns to holidays and the probability of another pause at the December 13 meeting now exceeds 97% . Economic data releases include new and pending home sales, consumer confidence, GDP, the Beige Book, personal consumption, the ISM manufacturing index, construction spending, and auto sales. Key third quarter corporate earnings reports will come from Kroger, Dollar Tree, Dell, Intuit, RBC, BMO and Hormel Foods. Retailers are adding up every penny that we have spent in stores, on line and on our mobile phones between Thanksgiving and Cyber Monday. Energy markets will be monitoring developments at Thursday’s OPEC+ meeting. The Supreme Court is hearing arguments on the constitutionality of the administrative law judges at the SEC and other executive branch agencies, numbering 2,000. And traders as well as political junkies across the nation will tune into Thursday night’s widely televised debate between the governors of California and Florida to measure their presidential mettle.

HJ Sims in the Market

In the municipal market this week, HJ Sims is bringing a $28 million non-rated issue for Reeves Memorial Hospital in Bernice, Louisiana. Bonds are being issued through the Ward 3, 4 and 10 Hospital Service District of the Parish of Union to construct and equip a replacement critical access hospital. Also on the $9 billion slate is a $22.9 million Wisconsin Public Finance Authority refunding for BB rated Revolution Academy in Summerfield, North Carolina, and a $230 million Arizona Industrial Development Authority social bond charter school financing for the A rated Equitable School Revolving Fund. Last week, HJ Sims underwrote a $5.2 million non-rated financing for Southeast Ohio Classical Academy in Athens, Ohio. Tax-exempt bonds due in 2030 and issued through the Public Finance Authority were priced at par to yield 7.50%

Tax Swaps and Portfolio Rebalancing

At HJ Sims, we always find the silver lining in every market cycle. As the German saying goes, “If the day wasn’t your friend, it was your teacher.” We look forward to working with you this week, this month and throughout the next year to help you reach your investment and financing goals. Reach out to your HJ Sims representative today to help work with your year-end positioning and plans for 2024.