Market Commentary: On the Edge of our Seats

By Gayl Mileszko

On the Edge of Our Seats

We live in times so interesting that we find ourselves on the edge of our seats all too often now. In recent days, there was the sudden call for a French snap election, then Friday’s triple witching hour which saw nearly 18 billion shares trade on U.S. exchanges at the same time that the S&P 500 Index was rebalanced. The Iowa Lottery is seeing 2024 sales hit a new annual high. Home prices have climbed to unprecedented levels. We saw new records set by the Celtics, the Panthers, and the WNBA. Heat records were broken in Chicago, Philadelphia, Bangor, Boston, Hartford, Raleigh, and El Paso.   Nvidia overtook Apple as the rising star with the second largest market capitalization in the world, but soon suffered a loss of $500 billion over a three-day period, the biggest such drop in corporate value in history. Lawyers and historians across the country anxiously await opinions from the Supreme Court on a dozen cases that run the gamut from presidential immunity to abortion before its term ends on Friday. And most of the world will tune into Thursday’s televised debate between two presidents, during which just about anything could happen. Some viewers may fall off the edge of their barstools; fainting couches may be in order for others.


The last time two U.S. presidents faced off was in 1892, back when television was still about 50 years away and women outside of Wyoming were still unable to vote.  The campaigns centered on important economic issues, tariff rates, and the currency of the nation, but voters were frustrated and bored with the stale candidates and their parties. The Democratic nominee, mustachioed former president Grover Cleveland of New York, defeated the bearded Republican incumbent, President Benjamin Harrison of Indiana, Populist Party member James Weaver and John Bidwell of the Prohibition Party. The First Lady, Caroline. Harrison, had been gravely ill and died of tuberculosis two weeks before the national election. Out of respect for her condition, the major party candidates limited their political activity. In the end, Cleveland took 62.4% of the electoral vote and a plurality (46%) of the popular vote, becoming the first and only candidate to be elected to a non-consecutive second term. The Democrats also won both houses of Congress but lost them two years later.

End of the Quarter

Traders will tune into Thursday’s debate as much for the pure entertainment value as for an indication of the likely winner whose policies will influence investment decisions going forward.  There are a number of possible scenarios for the conduct and outcome of the contest, but unless something completely unexpected occurs, markets are unlikely to be significantly impacted on Friday.  The last trading day of the quarter would normally be quite active with trades to improve relative performance and make strategic repositionings. But this is the Friday before Independence Day week, and many on Wall Street as well as Main Street will be en route to beaches, mountains and family celebrations. The TSA already broke the record for most people screened on a single day last Sunday, 2.99 million, and is preparing to handle more than 32 million travelers between Thursday, June 27 through Monday, July 8,


Fireworks could start earlier than usual this year if the Supreme Court releases some highly controversial opinions ahead of the Thursday debate, or on any otherwise quiet day ahead of July 4th. Their sessions normally end on June 30, but in 2019 and 2020, they stretched into the early part of the following month. The week is also heavily peppered with Treasury auctions, Federal Reserve speakers, and key economic data including consumer confidence, new and pending home sales, durable goods orders, a second read of first quarter GDP, and the big one: the personal consumer expenditure price index. Two branches of government in Washington are quiet, but three states are holding primaries, and the Fed is releasing the results of the annual stress test on 30 of our largest banks.  

Rate Forecasts

There have been a number of Fed speakers sharing their thoughts on the direction of rates and the timing of moves. Markets sift through the talk coming from Governor Michelle Bowman, who warned on Tuesday that she is willing to raise borrowing costs again if progress on inflation stalls or reverses, as well as from New York Fed John Williams who sees things moving in the right direction and rates coming down gradually over the next few years. As hard as they may try, it is impossible to dodge the political aspects of their decisions. No action could lead the nation into a recession. A cut close to the election can be seen as aiding the incumbent. A hike right after the election can make the job a lot harder for the incoming president and Congress. The markets, ever hopeful, presently forecast two quarter point cuts: in September and December.


The stock market indices have yo-yoed since the release of the last Fed statement and dot plot. Same with the 10-year Treasury, and the US Aggregate Bond Index. Many markets have gone sideways, but volatility has been steadily increasing for risk assets. For the month as a whole at this writing, the Dow has gained 1%, the S&P 500 is up 3.6% and the Nasdaq has risen 5.9%.  Oil is 5% higher, while gold has fallen about 0.5% and Bitcoin has lost 8.6%. Bonds have strengthened across the board. The 10-year BAA corporate bond index yield at 5.92% has fallen 20 basis points.  To give an example of a new issue corporate sale, BBB rated Toronto Dominion Bank priced $750 million of 60-year bonds, noncallable for 5 years, at par to yield 7.25%.  The primary corporate bond market has been very active: high yield sales in June total $15.4 billion and investment grade deals exceed $90 billion.   Pretty much everything in bond world is priced off the comparable U.S. Treasury, where yields have been inverted for more than two years now. The 2-year yield at 4.74% has fallen 13 basis points in June. The 10-year at 4.24% is down 25 basis points, and the 30-year at 4.37% is 27 basis points lower. 

Municipal Market Rally

Tax-exempts have participated in this month’s rally as well, and generally outperformed the government and corporate markets. The 2-year AAA general obligation yield at 3.05% has fallen 30 basis points in June. The 10-year at 2.79% is down 32 basis points. And the 30-year benchmark at 3.69% has dropped 37 basis points. High yield muni index returns are up 4.72%, pretty much on par with the Dow at 4.87%, and well above high yield corporates at +2.56%, investment grade munis at 0.14%, and Treasuries at negative 0.22%. Last week, Basis Texas Charter Schools came to market with a $106 million transaction and sold Ba2 rated bonds due in 2064 at 5.00% to yield 5.15%. Assent Academies of Utah brought a $37.7 million non-rated deal structured with a 2059 maturity that priced at 6.75% to yield 6.902%. Among other high yield deals, the Wisconsin Health and Educational Facilities Authority brought a $53 million non-rated expansion financing for the Dickson Hollow senior living community in Menominee Falls and sold 2059 term bonds at 6.125% to yield 6.15%.

Heavy Redemption Season 

It has been a tremendous year for municipal bond sales with volume up 40% over last year, including 27 deals with par value of $1 billion or more. This week’s calendar is expected to total $13 billion. Many institutions as well as individuals are scouring the slate to find places where they can invest some of the $36.4 billion of principal and interest being paid on July 1.  The demand for high yield transactions is tremendous.  High yield muni funds have seen net inflows every week this year with one exception in April during tax filing season. Last week a net of $249 million was added.


The personal savings rate of Americans hit an all-time peak at 32% of disposable personal income but has since dwindled to 3.6%, and household debt has mounted to a new record high of $17.3 trillion. Nonetheless, more than $6 trillion of assets lie in money market funds this week. Annualized 7-day current taxable yields are as high as 5.36% while tax-exempt money funds yield up to 3.32%. These rates are extremely attractive but if you believe that they will drop alongside Fed rate cuts, it may be worth thinking about moving some of these funds into higher yielding municipal and corporate bonds. Many investors and borrowers are looking to polish portfolios and financing plans in advance of the November 5 elections to avoid likely volatility.  Quite a few are aiming to finalize trades and issuance before Columbus Day and sit tight until the headlines quiet down. Others look forward to all the opportunities that may present themselves in the midst of the turmoil.  Reach out to your HJ Sims representative to see which strategies may work best for you. 

As we approach July 4th, we remind you that the markets will have an early close next Wednesday, and a full close next Thursday.  We at HJ Sims will mark the holiday by joining you, your family, your colleagues, friends, students, customers, and residents in celebrating our nation’s 248th birthday, our unique history, our strong union, our majestic vistas, can-do spirit, and  precious freedoms. God Bless America.