HJ Sims Market Commentary: One Day at a Time

by Gayl Mileszko

Two million people tuned into their radio sets at home to listen to the broadcast of the opening ceremony of the Lincoln Memorial on May 30, 1922. The National Park Service organized a dedication of the gleaming white Georgian marble Parthenon-inspired tribute to our 16th American president a full 57 years after he was felled by an assassin’s bullet at age 56 only five days after the official end of the Civil War. It has become the most popular Washington monument, and one of the most recognized buildings in the world, and has served as the backdrop for many celebrations, rallies and demonstrations. The memorial features 36 Doric columns, one for each of the states that were part of the Union in 1865, engravings from Lincoln’s greatest speeches, murals depicting reunification and emancipation, and a 175-ton statue of the man described by his biographer as being “of the immortals”. The Congress passed the first of many bills to fund the project in 1867 but ground was not broken until 1914. It was finally constructed two miles away from the Capitol on land known as Kidwell Flats that was generally described as an insect-infested swamp at a total cost of just over $3 million. Lincoln’s only surviving son, Robert (78), together with President Harding, Supreme Court Justice and former president William Howard Taft, and Dr. Robert Russa Moton, principal of the Tuskegee Institute, were all in attendance for the long-awaited event on that Decoration Day, one hundred years ago.

Signs of Strength and Weakness

Decoration Day was re-designated as Memorial Day in 1971 and this year’s ceremonies shared some limelight with the centennial Lincoln Memorial festivities. Many at the National Mall on Monday reflected on the durability of the huge monument, born as it was of crisis and war. Some see it as a bastion of hope and a call for unity, while others look around it and see people and regions that remain bitterly divided. Clear-eyed analysis reveals signs of strength as well as weakness in various parts of the country as well as in the nation as a whole. We are still in the midst of a pandemic that has caused as many as a million U.S. deaths, 15 million worldwide, and wreaked havoc on global supply chains for everything from batteries to baby food. The war in Ukraine rages on. Inflation is at a 40-year high. The Supreme Court will be ruling on at least 10 controversial cases in the next 30 days. U.S. GDP turned negative in the first quarter, even lower in the latest reading. A dozen years of easy monetary policy is suddenly being reversed. In the view of some economists, a recession appears inevitable.

The Best Thing About the Future

As Honest Abe once said, the best thing about the future is that it comes one day at a time. In the financial markets, we have seen what a difference one day can indeed make. Four or five trading days can undo a month or more of damage. A few words in the printed central bank meeting minutes can leave wiggle room and lighten dark projections. Last week, volatility in the stock market dropped 13%. The Dow, S&P 500, Nasdaq and Russell 2000 indices all rose by more than 6 percent. Bond prices increased as well as yields fell. The 2-year Treasury which closed at 2.47% dropped 11 basis points. The 10-year yield fell 5 basis points to 2.73%, and the 30-year yield at 2.96% ended the week down 2 basis points. The 10-year Baa corporate bond yield closed at 5.17%, down 14 basis points. Triple-A municipal general obligation bond yields did even better. The 2-year tax-exempt at 1.85% plummeted 40 basis points. The 10-year at 2.49% fell 34 basis points. The long bond at 2.83% shed 46 basis points. We will summarize the May-end performance in our commentary next week.

As Happy As We Make Our Minds Up to Be?

American consumers, which account for some seventy percent of the U.S. economy, are mostly optimistic and resilient. Lincoln once reportedly said that “Folks are usually about as happy as they make their minds up to be.” Sounds about right. But, then again, we can only take so much.  A key gauge of consumer sentiment fell to its lowest level in more than ten years and high inflation remains the top concern. The average price of beef and chicken have spiked 20% in the past year.  Gas prices have soared to record highs of $4.61 a gallon, 50 percent higher than last May, and are likely to surpass $6 by the end of the summer. Cereal is up over 9%, used cars are still up 35%. Air fares are 15% higher. On the other hand, mortgage rates just posted the biggest weekly drop in more than two years: the average 30-year loan rate declined from 5.25% to 5.10% according to Freddie Mac.

Tie a Knot and Hang On

If it was not Abraham Lincoln, it was Thomas Jefferson, Franklin Roosevelt or Theodore Roosevelt who first said “When you reach the end of your rope, tie a knot and hang on.” Despite all the volatility, rate increases, fund withdrawals, and losses across the board in all stock and bond indices, very few borrowers in the corporate or municipal markets have reached the end of their ropes and very few investors have cashed out. Exchange traded fund investments are, in some sectors including municipals, at all-time highs. Those invested in certain commodities are seeing the highest year-to-date returns:  natural gas prices are up 134%, thermal coal is up 182%, nickel is up 36%. Most high yield corporate issuers have remained on the sidelines this month as only $2 billion has been offered, but $30 billion of investment grade companies are entering the market this week. Long-term investors relying upon fundamental analyses have found incredible value in individual stock and bond offerings throughout these past days, weeks and months of volatility. 

Predict Your Future by Creating It

The best way to predict your future, according to Abraham Lincoln, is to create it. There was a holiday-shortened trading session last week, but a good number of muni borrowers took advantage of emerging stronger demand conditions. In the high yield sector, the California School Finance Authority came to market with a $57.2 million BBB-minus rated issue for Classical Academies Oceanside at 5.00% to yield 4.97% and a $53.2 million BB rated financing for John Adams Academies that featured a 40-year maturity priced at 5.125% to yield 5.17%. The Wisconsin Health and Educational Facilities Authority had a $33.8 million non-rated placement for Capitol Lakes structured with a 2049 term bond priced at par to yield 5.17%. The Innovation Montessori Oconee charter school brought a $28.4 million Ba2 rated deal through the Florida Development Finance Corporation structured with a 2056 term bond that priced at 5.25% to yield 5.75%. The Clover Garden School borrowed $19.3 million in a non-rated Wisconsin Public Finance Authority transaction with 40-year term bonds priced at 5.75% to yield 5.87%. The Maricopa County Industrial Development Authority sold $14.5 million of BB rated bonds for Choice Academies that had a 2045 maturity priced at par to yield 5.75%.

We at HJ Sims stand ready to help you forge your future, one investment at a time. Reach out to contact your representative today. We are now almost halfway through 2022 and await the opportunity to work with you to address your income needs and investment goals.

For more information on our municipal offerings or questions about current market conditions, please contact your HJ Sims representative.

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