by Gayl Mileszko
These days, everything we face is big, totally super-sized. We are no longer shocked by pandemic extremes reflected in any of the numbers, policies or headlines that we see. Meta Platforms, the parent of Facebook, recently had a one-day crash of $251.3 billion that ranked as the worst wipeout in stock market history, but investors around the world immediately shook it off. We see extreme fluctuations in daily gains and losses and carry on when just about everything is down this year by as much as 21%, in some cases much more. U.S. inflation is running at 8.6 percent, the fastest pace in 40 years, but consumers are still buying. The federal deficit now exceeds $191 billion, yet we are still borrowing. The unprecedented $5 trillion of COVID stimulus now totals more than three times the fiscal aid provided during the Great Recession and the Biden Administration is asking for more. Pandemic-era monetary stimulus has bloated our central bank’s balance sheet to over $8.9 trillion and talk about trimming is just beginning. There is still no serious discussion about how we might begin to reduce our national debt which, while widely reported at $30.5 trillion, likely exceeds $141.5 trillion when unfunded Social Security and Medicare promises are included.
Countdown to the Next Fed Meeting and November Elections
On our path into the third year of this pandemic, the number of us paying attention to county COVID case counts is waning and nothing under a trillion dollars moves our needles. What once qualified as shocking — even the threat of using a nuclear weapon — barely rattles us anymore. News, social and web media move our focus along to something else. We quickly dismiss bad news like negative GDP reports and recession indicators, troubling projections of the nation’s coming elder care needs, student loan forgiveness proposals involving massive sums, record surges in violent crime and border arrests or soaring energy, food, and housing prices. Our attentions are instead directed to dwell on things like a single slap at the Oscars, Musk Buys Twitter or, just this week, the incredibly rare leak of a draft Supreme Court opinion. We are 42 days away from the next Fed policy meeting, 187 days from mid-term elections and anything can happen.
The Big, Ugly April Numbers
April was already one of the cruelest months for stocks, bonds and many commodities. Traders faced rising rates, inflation on a higher track, new COVID lockdowns in China and the seemingly unending war in Ukraine. Over the course of the 20 trading sessions heading into today’s Federal Reserve Open Market Committee meeting, volatility as measured by the VIX shot up 62%. The Dow fell nearly 5% to 32,977. The S&P 500 dropped almost 9% to 4,131. The Russell 2000 sank 10% to 1,864. The Nasdaq lost more than 13% and closed at 1,896. Gold finished the month at $1,896, down $47 an ounce. Silver closed at $22.77, lower by more than 2%. Bitcoin at 38,519 dropped nearly 16%. Nickel, copper, Zinc, platinum, aluminum and steel prices all fell. Only oil, coal and natural gas saw gains of between 4% and 28%.
During the month, Treasury yields were up between 16% and 26% as prices dropped in anticipation of higher rates. The 2-year yield at 2.71% rose 38 basis points, the 10-year at 2.93% gained 60 basis points and the 30-year at 2.99% increased by 55 basis points. The 10-year Baa corporate bond yield at 5.16% shot up 74 basis points. On the tax-exempt side, as volume dropped to $34.3 billion from $37.1 billion a year earlier, the 2-year AAA general obligation bond yield increased by 45 basis points to 2.22%. The 10-year yield rose 56 basis points to 2.72%. The 30-year benchmark at 3.05% finished 55 basis points higher.
There is a Wall Street adage about the period between May and October when the stock market on average underperforms the prior six months. But this year, no one hopes that is the case and few on Wall Street are saying “sell in May and go away.” Through Monday, the S&P 500 and the Bloomberg U.S. Aggregate bond index, which is comprised mainly of Treasuries, investment grade corporate bonds and mortgage-backed securities, were down by 13% and 10%, respectively, for the year. The Wall Street Journal just reported that there have been only two times in recent history, 1976 and 1994, when stocks and bonds fell in tandem for the year.
May has historically been the strongest month of the calendar year for munis and we have already started to see some signs of strengthening in the tax-exempt market. Municipal bond mutual funds have had 15 weeks of outflows but recent gross purchases of muni funds were just reported to be the most in at least 13 years. And ETF inflows last week were reported by CreditSights to be the largest ever at $956 million. Total muni trading volume last week was the highest since April 3, 2020 and institutional bid-wanted volume was the heaviest since March 2020. The amount of principal and interest returned to investors on called and maturing bonds along with coupon income has begun to increase. The summer months will see more than $156 billion of new money available for reinvestment. This cash may bring about a major reversal in fund flows and help to stabilize a key domestic market.
Latest Municipal Bond Issuance
HJ Sims has guided hundreds of for-profit and non-profit borrowers through every market cycle since 1935. In the last trading week of April, HJ Sims came to market with financings to benefit two clients. The first was a $38.4 million revenue refunding bond issue for Kendal on Hudson in Sleepy Hollow, New York through the Westchester County Local Development Corporation. We priced the BBB+ rated bonds due in 2051 with a coupon of 5.00% to yield 4.53%. In addition, we a brought a $25.5 million non-rated issue through the Arlington Higher Education Finance Corporation of Texas for The Gathering Place, a public charter school in San Antonio, which we structured with maximum yield bonds due in 2062 priced at 5.75% to yield 5.90%. There were two other charter school financings on the $15 billion muni slate. The City of St. Cloud, Minnesota sold $27.4 million of non-rated lease revenue bonds for Athlos Academy structured with a final maturity in 2057 priced at 5.875% to yield 6.00%, and the Maryland Health and Higher Educational Facilities Authority issued $8.5 million of non-rated revenue bonds for Imagine Andrews at Joint Base Andrews including 2052 term bonds priced at 5.50% to yield 5.42%.
A Big News Week
This week’s market focus is now suddenly shifting between the Fed, the Treasury, the protests and rallies outside the Supreme Court, and Tuesday’s primary results in Ohio and Indiana. The Treasury Department is issuing a quarterly refunding announcement and holding five auctions, and the Fed just announced an increase in short-term rates, setting a benchmark for all others here and abroad. Analysts are parsing all the words and numbers while dissecting key the last of first quarter corporate earnings along with key manufacturing, construction, factory, job opening, auto sales, trade, productivity, and jobs data.
HJ Sims plans a $40 million BBB rated financing for the Asbury Maryland Obligated Group through the City of Gaithersburg on Thursday. We welcome your contact with an HJ Sim representative for information on this and other offerings that may be suited to your investment profiles, income needs and risk parameters. The muni calendar this week is estimated at $4.5 billion at a time when $21 billion of principal and interest payments has hit muni bondholder accounts in search of reinvestment opportunities.
For more information on our municipal offerings or questions about current market conditions, please contact your HJ Sims representative.