Market Commentary: Peering Out From Our Burrows

by Gayl Mileszko

On Groundhog’s Day, we learned that there are six more weeks of winter ahead and we were not surprised. Gobbler’s Knob was perfectly reflective of much of America: full of excitement over the prospect of good news but depressed by the prevailing climate, the big COVID-19 shadow hovering over everything, and the virtual nature of this year’s celebration causing us to watch yet another event live-streamed to our remote burrows. Even though we live in an era of smart phones and mega data, we still eagerly anticipate the groundhog’s prognostication every February 2nd. The little eight-pound rodent may be wrong 75% of the time but, full of hope, we still tune into the annual announcement from the inner circle of top-hatted club members. This year was particularly gloomy for the rural western Pennsylvania borough, as it has been for many towns reliant upon tourism. The annual festivities, which typically bring in as many as 50,000 revelers and $4 million of revenues, were limited to a small number of organizers due to the Pandemic.

The past year has created a painful emotional bookmark for billions of people with its unforgettable sacrifices and losses. While many traditions have been upheld in some form, COVID-19 has been a huge disrupter, and an accelerant of change. It has revealed broken health systems, brittle supply chains, deep political divisions, a fragile social fabric and real economic inequality, forever changing much about what we value, how we reason, how we make decisions. Many industries and neighborhoods have been entirely transformed. Some of this may have been inevitable. Nonetheless, there are many positives to be found. Communities and causes have become very important to us and a tremendous amount of good and good will has been generated. Health care heroes have worked selflessly to care for the stricken, and we developed new appreciation for our farmers, truckers, grocery store, manufacturing, and pharmacy workers as brilliant minds converged to create and deliver vaccines in record time. Further developments in artificial intelligence, retail robotics, drone deliveries, cellular medicine, 3-D printing, and urban agriculture, to name a few, have been accelerated. We expect to see innovators and entrepreneurs deliver spectacular new products and services in the months and years ahead.

Future trends are among the topics that we will address in more depth at the HJ Sims 18th  Annual Late Winter Conference later this month. The virtual gathering will focus on how the Pandemic has impacted retirement living and planning, some of the new strategies, technologies and best practices being employed by senior living providers, and innovative ways to finance acquisitions, developments, and expansions. To attend the virtual event being held on Wednesday, February 24, please register at

The first month of 2021 just came to a close. January was a symphony in at least three movements involving mass vaccinations, new swearing-ins, and short squeezes that ended on many uncertain notes. The Fed kept short-term rates unchanged, as everyone expected, and is continuing its bond-buying program at $120 billion per month. The initial reading for fourth quarter gross domestic product came out at 4%, below expectations. Many market observers were mesmerized and traders were distracted by the retail investor-fueled rallies in extremely shorted stocks including GameStop and AMC, portrayed by some in the media as a modern day David and Goliath story. Stock markets reacted in shock and weakened as trading and clearing operations were disrupted by restrictions, margin calls, and delays. In addition, investors began to face the realities of very different energy, trade, immigration, regulatory, and tax policies as the new Administration issued executive orders. The VIX volatility index rose 6% on the month, the Dow lost 2% and the S&P fell 1%, while the Nasdaq gained 1.4% and the Russell 2000 climbed 5% as fourth quarter earnings season began. Oil prices increased by 7.6% to $52.20, silver was up 2.4% to $26.98, and Bitcoin gained 25% to close at $35,725 while gold prices fell 2.5% to $1,847.

U.S. Treasuries lost 1.13% in January and high grade corporate bonds fell 1.23% while high yield corporates gained 0.37%. The 2-year Treasury yield closed down 2 basis points on the month to 0.10% while the 10-year increased by 15 basis points to 1.06% and the 30-year ended 18 basis points higher at 1.82%. The 10-year Baa corporate bond benchmark yield rose by 10 basis points to 2.75%. Investment grade corporate issuance on the month totaled $127.5 billion with the financial sector accounting for 62%. High yield issuance totaled $49 billion, the third largest monthly total on record, and demand remains very strong: PetSmart, for example, saw more than $12 billion of orders for its $2.35 billion CCC rated deal. In other fixed income sectors, convertible bonds returned +3.55% in January while preferreds lost 1.36%

The municipal market posted a 0.65% gain last month; high yield led the way with returns of 1.91%. Transportation bonds gained 1.56% and hospital bonds were up 0.72%. Taxable munis maturing in 10-15 years finished 1.31% higher. The 2-year AAA general obligation benchmark yield fell 2 basis points to finish at 0.11%, the 10-and 30-year yields ended basically flat at 0.72% and 1.38%, respectively. The traditional relationship with U.S. Treasuries has been upended. Municipal/Treasury ratios dropped to new lows with the 10-year at 67% and the 30-year at 76%. Investors added record amounts of cash to municipal bond funds and ETFs, $10.7 billion so far this year. As is typical for January, new issue supply was low at $24 billion, with $6.7 billion coming as taxable debt, and the clamor for bonds with yield was unrelenting. The Chicago Board of Education sold $558 million of BB-/BB rated bonds at levels unrelated to its credit in the midst of a threatened strike by teachers. General obligation bonds due in 2041 were priced with a coupon of 5.00% to yield 2.24%, only 105 basis points over the AAA benchmark yield. The issue was reportedly 30 times oversubscribed. The CSCDA Community Improvement Authority issued $176 million of non-rated multifamily housing revenue debt designated as social bonds due in 2056 at a rate of 4.00% to yield 3.55%. The District of Columbia came to market with a $28.1 million non-rated charter school financing for Rocketship structured with 2061 term bonds priced at 5.00% to yield 3.33%.

February begins the second chapter of the 12-month investment cycle and we encourage you to contact your HJ Sims representative for a conversation on preparedness. What should you do? What should you NOT do? If there is one thing we have learned in the past year, it is that we are in a transition, with a new kind of permanent volatility, and we need to take preparedness to a new level. We are surrounded by predicters, from groundhogs to Nobel economists, from strategists to futurists, mystics to pollsters, entrepreneurs to oddsmakers but they all missed the timing and extent of the Pandemic that made Time Magazine declare 2020 the “worst year ever”. More surprises are undoubtedly in store. It makes sense to seek the best advice possible so as to be prepared as best we can to adapt to whatever the future has in store.

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