Market Commentary: Live From New York

By Gayl Mileszko

Live From New York

Laughter can often be the best medicine and, in this world full of contention, contagion, and inflation, we can sure use more elation. “Saturday Night Live” has been delivering a brash form of comedy for 50 years now. The Lorne Michaels-created late night sketch show on NBC has launched the careers of funny folk like John Belushi, Gilda Radner, Chevy Chase, Dan Akroyd, Dana Carvey, Eddie Murphy, Adam Sandler, and Tina Fey, among others, and won a record 84 Emmys. Over the years many fresh teams of performers, writers, celebrity guest hosts and musicians have pushed some limits of comedy, redefining satire, and making us grin, chuckle, roll our eyes, and howl. They have had good years and bad, but have always made us reflect on the truest, often silliest, aspects of our culture and politics. After five decades, millions of viewers still count themselves in the SNL cult of fans.

Wall Street Backdrop

Fans of Wall Street rallies face more than the usual number of potential market movers this week, this month, next month and into the new year. Economic data has, however, been relatively tame going into the elections. Given the tendency of every administration to put the most positive possible spin on every data point released in election years, we should not be surprised by some downward revisions soon after November 5. This week, CPI and PPI, the minutes from the last Fed monetary meeting, consumer sentiment and expectations are not expected to hold any surprises. But among other key events, third quarter corporate earnings season begins and the Supreme Court assembles for a new term. Boeing workers are still on strike but the dockworker action is on pause until it becomes the next president’s problem. There are nine Treasury auctions and crosstalk from 20 Federal Reserve officials on the speaking circuit, any one of which could create rogue waves.

Helene and Milton

Two powerful back-to-back hurricanes have taken the lives of hundreds down south and inflicted tens of billions of dollars of damage. The ramifications on the broader economy have yet to be determined, but our thoughts and prayers are with all who are being directly impacted. We welcome all updates and recommendations on how we, and our readers, can be of most direct assistance in the recovery efforts

New York State of Mind

Traders continue to buy, sell and hold as if they the crises in the Middle East and Eurasia will not further escalate. But we have warships and planes being assaulted by missiles and bomber drones, and we are striking back at Iran-backed Houthi targets in Yemen. Back home in Scranton, Pennsylvania, the Army munitions plant is churning out 36,000 155-millimeter howitzer rounds a month for artillery use by Ukraine and Taiwan. You would never know it by reading the rosy ticker tape, but by most any measure, we are at war. We have about 43,000 troops and a dozen warships stationed in the Middle East that, thousands deployed in and near Ukraine for training, and hundreds stationed in Taiwan.

Rotten Apples

There may not be enough worry on the international front to move the volatility indices or propel investors into defensive sectors, but there has been significant uncertainty over interest rates, and election outcomes. We are seeing a spike in corporate bankruptcies and credit card debt, a federal budget deficit of that has climbed to $1.8 trillion, our own central bank with a $200 billion operating shortfall, and a national debt increasing by $1 trillion every 100 days. Nevertheless, the Dow is up over 11%, the S&P 500 has gained more than 20%, and the Nasdaq is 21% higher.

Spreading The News

The bond market tells a bit of a different story, and has needed to adjust after having previously assumed more interest rate cuts than we will see this year. At one point, hopeful borrowers expected 6 quarter-point cuts from the Fed. As of the close on Tuesday, the 2-year Treasury yield at 3.95% has risen 25 basis points this month. The 10-year yield at 4.01% is 17 basis points higher and the 30-year at 4.29% is up 12 basis points. During the first 6 trading days of October, the key muni benchmark yields are all 13 basis points higher. The 2-year AAA general obligation bond yield stands at 2.43%, the 10-year at 2.72% and the 30-year at 3.65%. The SIFMA 7-day swap yield is 3.00%.

The Rising

Municipal bond issuance exceeds $388 billion this year, with new money representing approximately 77%. Mutual funds have taken in a net of $22 billion, with 14 straight months of inflows. High yield mutual funds have added more than $13 billion, not surprising as high yield index returns at 8.26% year-to-date are beating all other fixed income sectors. Muni ETF assets have increased to $135 billion, and tax-exempt money market funds hold $131 billion. Bloomberg Intelligence estimates that $41.7 billion of principal and interest payments will be made to muni bondholders in October, an increase from the $31.8 billion paid in September. Given the major impact of Hurricanes Helene and Milton, traders are closely monitoring the activity of the insurance companies. Property-casualty and life insurance companies hold about 10% all the $4.1 trillion of outstanding municipal bonds; a major sale of portfolio positions can have a significant impact on the secondary market and bond evaluations.

All The Scales Fit To Print

HJ Sims came to market last week with an $81.3 million non-rated bond issue for Nashville Collegiate Prep, a four year-old K-8 public charter school currently serving 857 students, and Rutherford Collegiate Prep, a first year K-6 charter school serving 497 students. We structured the Tennessee facility acquisition financings with a senior, subordinate and taxable series, issued through the Public Finance Authority. The single senior term bond in 2054 priced with a coupon of 7.50% to yield 7.625%. Last week saw $12.9 billion of sales in the primary market, about 40% above the average for the past 12 months. This week’s calendar is expected to total $11 billion and HJ Sims is back in the market with another Public Finance Authority financing for Cornerstone Charter Academy in Greensboro, North Carolina. This is a growing K-12 public charter school with 1,345 students and a waitlist exceeding current enrollment. S&P currently rates the credit as BBB-minus with a stable outlook. For more information, please contact your HJ Sims representative.

A City and The Markets That Never Sleep

At this writing, futures trading indicates expectations for two more quarter point reductions at the November 7 and December 18 central bank policy meetings. Rising gold prices, up 26% since the start of 2024, have been reflective of some flight to safety maneuvers as well as a keen desire to hedge against a sudden market reversal. Investors divided by fear of recession and desire to participate in these perpetual rallies have also moved record setting levels of cash into money market funds or alternatives like Bitcoin which is up nearly 50% this year. ICI reports money market fund assets under management at $6.46 trillion, with $2.6 trillion held by retail investors and $3.8 trillion by institutions. Exchange traded funds, viewed by many as more liquid and less expensive than mutual funds, have added a net of $561 billion: $381 billion in equity ETFs and $180 billion in fixed income sectors.

Excelsior

HJ Sims was formed as a private company in New York in 1935 and we have since moved our corporate headquarters to Connecticut, opened new branch offices, and expanded our product and service offerings. But we still operate under the Empire State’s motto: Excelsior. Our goal is to guide our clients “ever upward” with our skilled professional banking, sales, trading, analytic, and operations team. Please contact us to discuss your market concerns, your current investment and financing goals, and how we may help to guide you through the opportunities and risks in the environment here in this final quarter of 2024.