Market Commentary: Some Gave All

By Gayl Mileszko

Some Gave All

In the middle of the night last January 11, SEAL Team Three was dispatched to board an unflagged ship off the coast of Somalia and seize its cargo. That vessel had a crew of fourteen and was known to be carrying lethal Iranian-made weapons destined for Yemen. Houthi rebels based there had been, and still are, attacking commercial and Navy ships in the Red Sea with missiles and drones. The “Frogmen” (as they are known in the Naval Special Warfare community) went in to block the resupply of key component parts — including guidance devices and warheads being used in the assaults. That night, their Navy craft navigated through the rough Arabian seas and came alongside the target dhow.  A formal investigation into exactly what happened next is still underway.

The Price of the Mission

Several sources report that Special Warfare Operator 1st Class Christopher J. Chambers watched aghast as high waves knocked his teammate, Nathan Gage Ingram, 27, off the rope ladder that the commando team used to board the target ship. Ingram fell into the gap between the Navy speedboat and cargo ship and disappeared into the black water. Chambers immediately jumped into that same gap in an effort to save his teammate.  The two men, wearing heavy body armor, weapons and other equipment were unable to rise back to the surface. Rescue efforts were unsuccessful. Their devastated SEAL teammates went on to successfully complete their mission on that tragic night.  And, over the next eleven days, they gave their all in a massive search of over 21,000 square miles for the two sailors.  That recovery effort is still underway. 

Gold Tridents

There is still some debate over which man tried to save the other, but there is no doubt that both SEALs died as heroes. During the April memorial service held by the special warfare community in San Diego, teammates of Chambers and Ingram stood in formation to honor them.  Tradition required that they remove the gold Tridents from the left chest of their uniforms and pound them into the caskets of their fallen brothers. In this case, as the men were lost at sea, they stamped their tridents onto wooden plaques.  The two names will also be carved into the black granite panels on the walls around the Navy SEAL memorial sculpture and reflecting pool on North Hutchinson Island in Fort Pierce, Florida.

Heroes Among Us

Chris Chambers of Cheverly, Maryland and Westfield, Massachusetts, was 37 years old and left behind a wife and baby daughter. He is among a treasured class of men and women who made the ultimate sacrifice for our country this year. His all-American story ended far too soon. Among those honoring Chambers were his coaches and trainers at Bishop McNamara High School and Westfield High School, the University of Massachusetts at Amherst and the University of Maryland, where he competed on the swim teams. It surprised no one that, after obtaining his degree in business, he enlisted in the Navy in 2012 and, two years later, completed the grueling course of SEAL BUD/S training, forming lifelong bonds along the way. The recipient of four achievement medals, Chambers is one of the most recent of our nation’s military casualties, mourned by all whose lives he touched. On Memorial Day, we remembered him along with the millions of others who have died in combat for the United States of America.

Wreaths and Flowers

The date of the first memorial celebration in 1868 was chosen because flowers were sure to be in bloom all over the country at that time in May, and these flowers were to be used to decorate the graves of the Civil War dead.  In 2024, on the 156th observance, we paused to pay our respect to those fallen in all battles with parades, wreath-laying ceremonies and many other tributes. For all too many who are no longer being taught American history in school, Memorial Day has simply become a holiday that marks the unofficial start of summer with barbecues, fireworks, and vacation travel. In fact, a record 2.95 million fliers were screened by Transportation Security Administration officials at airports on Friday and, over the long weekend, approximately 38.4 million traveled our roadways to be with family and friends.  Our financial markets once again closed in observance of the somber national holiday. Absent major headline news, trading will be light in the early part of this week. As travelers work their way home, activity will be re-ignited with the release of economic data in the form of GDP, the Beige Book, and the highly significant personal consumption expenditures price index later in the week. Markets are searching for signal lights ahead of the next Federal Open Market Committee announcements on June 12 when the next “dot plot” will be released.

In the Shadows of Tech Darling Nvidia

Last week saw the release of minutes from the last FOMC meeting and the latest new and existing home sales reports, none of which alone moved markets. But, taken together with hawkish remarks from Fed officials, market corrections resulted from investor sentiment that now reflects the likelihood of — at most – only one rate cut this year, in September, at the last Fed meeting before the November 5 elections. Losses registered throughout bond world and the Dow; only the Nasdaq registered gains, primarily as a result of Nvidia’s quarterly earnings  and its stock split announcement. The AI chipmaker is now reported to have the best business brand reputation in America and its performance and has propelled the tech index to reach a record high for three straight weeks. 

Bonds Weaken along with Hopes for Rate Cuts

In the shadows of tech stock and risk markets, bond performance has also been impacted by heavy volume. U.S. Treasury, investment grade corporate bonds, and municipal bond issuance was exceptionally high once again last week, and that has had some adverse impact on pricing and distribution.  The  high yield corporate market saw $11.2 billion of volume, investment grade corporate issuers sold $26.1 billion of new issues and the municipal slate totaled $13 billion. Muni volume at $183 billion is up 37% over last year.  Yields rose across the board; intermediate maturities of investment grade munis with 3% coupons were among the hardest hit. The highest rated 5- and 10-year muni yields increased by more than 20 basis points in the runup to the long weekend. Municipal dealer inventories were at 48-week highs, and bid-wanteds and offering par were at historically elevated levels.

For Many, It Feels Like A Recession

While these higher yields are attractive to tax-exempt buyers, polls suggest that about three out of every five Americans believe that the U.S. is in a recession, and quite a few economic indicators support these claims: a Treasury yield curve that has been inverted for approximately 400 days, the wide spread between the fed funds rate and the 10-year Treasury yield, delinquent payments on credit cards, loans and mortgages, weaker business orders, fewer permits to build new homes,  elevated inflation, and rising gold prices, among others.  Contrast this with steady hiring, low unemployment, low numbers of layoffs, and increasing GDP, all of which tells another tale. Confused by the conflicting numbers, many investors continue to run to cash, to await more clarity on the direction of the economy.  Money market funds are at a $6.06 trillion high, hovering at all-time highs, with taxable funds yielding about 5.13% and tax-free funds yielding about 3.37%. 

Market Movers

This week, markets are moving to a one-day settlement process for trades, down from the two-day deadline in effect since 2017. Stocks, muni and corporate bonds, ETFs, some mutual funds and the limited partnerships that trade on exchanges are all affected. Glitches are anticipated but if you have questions or encounter any problems, do not hesitate to contact your HJ Sims representative. Also in this holiday-shortened week, we expect 10 Treasury auctions, $15 billion of investment grade corporate bond sales and $7.5 billion of municipal bond sales.  Fed officials, whose remarks capture the attention of investors around the world, continue to be very active, with 7 on the speaking circuit this week. Major corporate earnings from Dick’s, Best Buy, Costco, and Dollar General will help to shed more light on consumer activity and sentiment. There are no primary election results to follow this week, and the Congress is in recess.  But markets are keenly attuned to economic data releases and traders always have an eye on events overseas. This week there are many to track in North and South Korea, Iran, Rafah, Ukraine, Germany and in New York at the United Nations Security Council.

Whither Volatility?

At this writing, the last trading week of May, the stock and bond volatility measures, VIX and MOVE, have fallen more than 22% month-to-date and just about every asset class has rallied.  Bitcoin at $68,364 is up 13% this month. Gold at $2,333 is up 1.7% after having set an all-time record high. Natural gas, platinum, copper, and nickel prices have all increased. In the fixed income world, last week saw yields jump but U.S. Treasuries, investment grade and high yield corporates, mortgage-backed, and convertible bonds and preferred stock yields have all fallen in May. The 2-year Treasury yield at 4.94% is down 9 basis points. The 10-year BAA corporate bond index yield at 6.10% has fallen 26 basis points. And the 30-year AAA municipal general obligation benchmark yield at 3.87% has dropped 9 basis points. The IRS reports that more than 6.93 million Americans claimed tax-exempt interest on their returns in 2022, the last year for which statistics are available. Given the attractive raw yields available, investors are clamoring for more. Fortunately, in June, muni bondholders will have $53 billion of principal and interest to put to work, including $16 billion of cash from maturing and called bonds, and $9.7 billion of interest, on June 1 alone.

HJ Sims in the Market

Among recent municipal bond sales, HJ Sims brought a $2.8 million non-rated charter school revenue bond issue for Clackamas Middle College in Happy Valley, Oregon. Bonds maturing in 10 years are callable in two years at 102% and were priced at par to yield 6.50%.  The Oklahoma County Finance Authority sold $64.3 million of non-rated charter school lease revenue bonds for ASTEC charter schools in Oklahoma City, pricing the 40-year bonds at 6.50% to yield 6.52%. Also in the high yield sector, the New Jersey Health Care Facilities Finance Authority issued $35.9 million of non-rated revenue bonds for the Paragon Village assisted living community in Hackettstown; the Series A bonds due in 2033 were priced at par to yield 6.25%.  In the investment trade space, the Arlington Higher Education Finance Corporation brought a $212.4 million PSF-guaranteed, AAA rated charter school deal for Harmony Public Schools, and sold the term bonds due in 2054 at 4.00% to yield 4.35%. And this week, the Albany Capital Resource Corporation plans to offer $50.7 million BBB-minus rated bonds for the KIPP Capital Region Public Charter Schools District in New York.

Good News, Bad News

Despite all the conflict and uncertainty here and abroad, heavy regulatory activity, unprecedented fiscal stimulus still sloshing around, and leadership issues in a presidential election year that has not pitted an incumbent president against a former one since 1912, investor optimism here cannot be quashed. Bad news for some often translates into good news for others. 30-year mortgages were over 7% for five weeks, before falling to 6.94% on May 23.  Credit card interest rates are over 21%.  Household debt is at a record high $17.69 trillion with a 3.1% delinquency rate.  Inflation is still climbing: gasoline was up 3.1% in April, shelter costs in April were up 5.5% year over year, and consumer prices were up 3.4% for all items. The 10-year Treasury yield is near its highest level since October of 2007. But investors pick and choose the facts they like and hold out hopes for at least one rate cut later this year. At this writing, the S&P 500 is trading at more than 27 times earnings. Stock market indices have broken all records: the Dow peaked at 40,003 on May 17, the S&P 500 is over 5,300, and the Nasdaq is over 16,900.

Inspiring SEAL Rules

As some know from firsthand experience or even from movies like G.I. Jane, American Sniper, and Lone Survivor, SEAL is an acronym for Sea, Air, and Land – all environments in which these sailors are trained to operate.  Their motto is “The only easy day was yesterday.”  Among the SEAL rules to live by: You cannot go it alone. You win or lose many of your most important choices in one second. When facing situations in which things might go wrong, remember that 20% is beyond your control but you direct 80% of what happens. And whenever you think you are totally tapped out, you are really only 40% done and still have 60% left in your tank.

Honoring the Fallen

Perhaps at no other time since the Civil War is it more important to reflect upon America as a place where so much more unites us than divides us. We need to be reminded of perils faced every hour by the 2.86 million in uniformed service, and we need to acknowledge the great human cost involved in defending and protecting freedom here and around the world. During this Memorial Day week, we at HJ Sims honor the brave military men and women who gave all to protect and defend our many liberties.