HJ Sims Market Commentary: Red, White, Black and Blue Confetti

by Gayl Mileszko

The 2024 presidential campaign season is off to a start already with Tuesday’s announcement by former president Donald J. Trump. The launch of his third bid for the Oval Office came just one week after the mid-term elections flipped the U.S. House to Republican rule by a slim margin but left the Senate under Democratic control, likely reliant once again upon Vice President Harris to cast tie-breaking votes depending on the outcome of the December 6 runoff in Georgia. Several races are still undecided at this writing, and there will be recounts and audits. For now, most pollsters and pundits are left scratching their heads and blubbering about underweights while financial markets, pleased with the assurance of gridlock, sigh with relief and return full attention to the unelected of the Federal Reserve, Washington’s real powerhouse.

No Balloons or Streamers for the Fed

Several Fed officials, including the Vice Chair, suggest that the central bank should moderate the size of its rate increases while hawks insist that there is still “a ways to go” and chastise the markets for getting “way out in front” of any pivot. Their words rain down like confetti on the stock, bond, commodity and currency markets, most falling to the floor soundlessly alongside the tickertape but some cannot be shaken off by traders. On the economic stage against a backdrop of high inflation, signs of recession, sharply weakening consumer sentiment, a war we finance in Europe still raging, new layoffs, national debt close to the ceiling, no clear budget for the coming year, spending that requires eight Treasury auctions a week, a central bank increasing key rates every six weeks and trying to unwind an $8.6 trillion balance sheet, it is hard to find anyone in the audience to clap or cheer, hang banners or drop balloons.

Bear Market Rally

The bond markets paused a bit last week to monitor the Elections and observe Veterans Day, and the muni new issue market saw less than $1 billion of issuance. Secondary market trading was strong, with more than $13.4 billion a day changing hands and, alongside Treasuries which rallied 30 basis points after the latest inflation data came in a tad below expectations, tax-exempts posted a daily gain of over one percent for only the twelfth time since 1988. Just ahead of Thursday’s rally, HJ Sims brought the week’s only charter school financings to market. We financed $25 million of non-rated bonds issued through the Utah Charter School Finance Authority for a new K-8 John Hancock Charter School in Eagle Mountain. Bonds due in 2027 were priced with a coupon of 6.25% to yield 6.733%. We also sold $26.3 million of triple-A rated bonds for The Hughen Center, the nonprofit operator of four Bob Hope charter schools with campuses in Port Arthur, Beaumont, and Baytown, Texas, serving Pre3K-12 students. The bonds, which were structured with a final maturity in 2057 priced with a 5.00% coupon to yield 5.10%, are guaranteed by the Texas Permanent School Fund and were issued by the City of Newark Higher Education Finance Corporation to help finance a fifth school.

Dogwoods at Long Ridge Road

This week, HJ Sims is in the market with a $30 million non-rated bond anticipation note issue for The Dogwoods at Long Ridge Road, a new Jewish Senior Services-affiliated life plan community being designed with 148 independent living units, 12 assisted living plus 14 memory care suites, and 14 skilled nursing beds on 15 acres in Stamford, Connecticut.  Bonds are being issued through the City of Stamford Housing Authority to finance pre-development costs including the purchase of land. These bonds are only available to qualified institutional buyers and accredited investors in minimum denominations of $25,000 and will not pay interest on a current basis. We invite you to contact your HJ Sims representative for more information on this and other offerings in this higher yield environment where we focus on an outcome of higher income for you.

Market Movers

Factors affecting the markets this week include third quarter corporate earnings for major retail firms including Walmart, target and Macy’s, economic data releases for retail sales, producer prices, import and export prices, industrial production, housing starts, existing home sales, building permits, jobless claims and the leading index. There are seven Treasury auctions and 15 Fed speakers. The President is attending the G-20 summit in Bali. Congress has returned to select their leaders, and the lame duck session of the 117th session begins. Markets are closely monitoring weekly fund flows. Municipal bond mutual funds have seen $126.5 billion of net redemptions thus far this year, while muni ETFs have taken in a net of $20 billion. Distress and defaults in the $4 trillion municipal market remain rare but the City of Chester, Pennsylvania, which has been under various forms of supervision for more than 27 years, filed for Chapter 9 bankruptcy last week with unfunded pension liabilities of $100 million and $15 million of outstanding bond debt.

Market Benchmarks

At this writing, the 2-year Treasury yield at 4.35% has exceeded that of the 10-year (3.73%) since July 5. The 3-month government yield at 4.23% has exceeded the 10-year yield for 6 days, and at this writing it is 50 basis points higher. The 12-month Treasury yield at 4.61% remains well above the 30-year at 3.91%.  Prices have risen and yields are down between 13 and 31 basis points in November. Halfway into the penultimate trading month, the Dow at 33,536 is up 2.5%.  The S&P 500 at 3,957 is up 2.2%. The Nasdaq at 11,196 has gained 1.9%. The Russell 2000 at 1,861 is up 0.8%. Oil at $85.87 is flat while gold at $1,770 is 8% higher, silver at $21.96 has risen 15%, while Bitcoin at $16,560 has plunged 19% in response to the FTX bankruptcy. Ten-year BAA corporate bonds yield at 6.87% have dropped 28 basis points. And AAA rated general obligation municipal bond benchmarks stand at 2.92% for the 2-year, and 3.12% for the 10-year. The 30-year yield at 3.85% finished on Thursday below 4.00% for the first time since August 9.

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

Exclusive Opportunities For Our Clients