Market Commentary: Suited Up for the Season

by Gayl Mileszko

Suited Up for the Season.

It has been a looooong stretch since February 12, but football is finally back, and we are already biting our nails, covering our eyes, jumping on the couch and clearing our schedules for parts of four days a week to take in those thrills of victory and agonies of defeat. Tennis and golf filled none of the holes in our hearts since the Super Bowl. Oh, we still take in some baseball, and maybe a little soccer now that Lionel Messi is here. It is still too early for hoops and pucks but, for most Americans, everything else pales in contrast to the action on the gridiron during four spectacular months of play. It is our nation’s most popular spectator sport. We love the rivalries, the Cinderella stories and Hail Marys, and of course the game-day appetizers and tailgating. We have our little rituals, our lucky outfits, and we collectively hold our breaths when flags are dropped or chains come out to measure the inches. Face it, no one can make it through a family Thanksgiving without football. And, all the way up past Christmas into the New Year, no matter what else is going on, weekly college and NFL upsets will dominate key topics of discussion with office colleagues and wagers with complete strangers.

Racking Up the Wins

Football is not a gentle game. Nor is investing. Both involve a lot of strategy, speed and agility. There are injuries and losses, recoveries and trophies.  Different equipment and clocks are used, but the goals in each case are to score, to gain ground on the field of play often while taking hits from multiple, sometimes unexpected angles: a black swan, a Lynn Swan, a Fed hike, a fumbled hike, a hack, a sack, a brawl, a call. The media love to cover the suspense, the spectacle, the brutal side of the competition, the movements amid ticking time constraints, the questionable calls made by referees and regulators. Those in the stock, bond and commodity markets have their version of heroes on the offensive and defensive sides. Brands, colors, logos, and swag are often distracting. It always pays to study the statistics, the coverage, the returns.  


Football fans love the excitement and unpredictability of the game. In the financial markets, by contrast, investors crave certainty — and there is little of that to be found right now. We wonder: is a recession here now or imminent? Will the Fed raise rates again? Will the UAW strike and deliver a major blow to the economy? Will gas prices continue to rise? Will food prices ever come down? We have already seen shelter prices rise for 40 straight months; can we expect any relief in the near term? What will happen to consumer spending when student loan repayments resume? Are we on the cusp of war with Russia or China or both? Are we on the cusp of a civil war? Is the illegal immigration crisis destroying New York and other major cities? Have Americans lost confidence in our election process? Will the government shut down later this month? Will the President be impeached and removed from office? Will every president going forward face impeachment efforts by the opposition party?

Silly Season

When we say that “The Season” has begun, we do not only refer to football, academics, falling leaves and harvests.  This is the unofficial start of the “Silly Season.”  Political and other fundraising campaigns are being kicked off.  Appropriators in Washington are hard at work to get funding in place before the start of the new federal fiscal year, but some very thorny issues are linked to passage in each chamber and then in conference, including Ukraine aid, border security, impeachment, spending reductions, and policies at the Pentagon, in intelligence agencies and at the Justice Department.  There are three more scheduled Federal Open Market Committee meetings left in the year and, while futures trading shows no expectation for another rate increase, anything can happen. There has been significant turnover in key central bank positions in the past few years with three new presidents of the regional Fed banks. President Biden has added four new governors to the 7-member Federal Reserve Board and one, Philip Jefferson, was just confirmed as vice chair.  The hawk-dove count is being readjusted with last week’s confirmations of Lisa Cook and Adriana Kugler. The Fed has an $8.1 trillion balance sheet and, at the current pace of redeeming maturing Treasury and mortgage-backed securities, it would take about 15.6 years to run it all off. The next president will have the opportunity to appoint at least 2 Fed Board members and that president will be elected 418 days from now. 

The Pause to Honor Victims and Heroes Tops a Week of Headlines

This week, the U.S. just solemnly marked the twenty-second anniversary of 9/11 when 2,977 souls from 115 countries were lost in the deadliest terrorist attacks on American soil. The U.S. House of Representatives came back in session and the Speaker just announced the launch of a formal impeachment inquiry into President Joe Biden. Traders take note but are more focused on digesting the latest inflation, retail sales and consumer sentiment data along with results from seven Treasury auctions. The $35 billion 10-year auction on Tuesday sold at 4.289%, the highest yield since 2007.  Investors are still sorting out the international reaction to President Biden’s appearances in India, Vietnam and Alaska, and the implications of the release of $6 billion in frozen Iranian funds. As humanitarian efforts are underway in Morocco and Libya, the global spotlight shifts to the meeting of the leaders of Russia and North Korea at the Vostochny Cosmodrome to discuss a possible arms deal, and the meeting of the leaders of China and Venezuela in Beijing to hammer out the terms of a new strategic partnership.  

Market Movers and Schedules

Federal Reserve officials are silent this week as they are within the blackout period ahead of the September 19-20 FOMC meeting. At this writing, futures trading still indicates very low probabilities of a rate cut until June 2024. Equity markets are focused on key second quarter corporate earnings from Oracle and Adobe. Volatility as measured by the VIX is up 5% so far this month and all the major stock indices are down in September. At this writing, the S&P 500 has lost 1% and the Russell 2000 is down 2.3%. Conventional equity fund investors have been net sellers for 83 consecutive weeks. Corporate bond buyers anticipate $30 billion of new investment grade offerings on the heels of a $55 billion slate during Labor Day week. High yield buyers are scouring the $7.1 billion primary market.

HJ Sims Finances Pathways to College

In the tax-exempt sector, we are seeing elevated trading volume as new issue sales ramp up with yields at highs of the year. HJ Sims came to market last week with a $25.1 million financing for Pathways to College in Hesperia. This non-rated charter school transaction came through the California School Finance Authority and was priced at par to yield 7.50% in 2063.  It is not surprising that secondary market bids-wanted par has been exceeding $1 billion a day and that offering par on Monday exceeded $31.3 billion, a record high, as investors seek to replace lower yielding bonds with the higher new coupons. Last week saw another wave of fund outflows totaling $798 million, bringing the net year-to-date asset losses in mutual funds and ETFs to $8.4 billion. And muni buyers are seeing little cash hitting accounts for reinvestment; the month of September will see only about $28 billion of principal and interest returned to investors, the second lowest month of the year for payments after April. 

The Tax-Exempt Market

On September 6, the 7-day SIFMA municipal swap index yield at 3.41% fell below 4% for the first time in three weeks. On Friday, the difference between the highest rated 1-year municipal general obligation bond yield at 3.25% and the 30-year yield widened to 67 basis points but the 1-year yield still remains higher than the 13-year maturity at 3.21%. The curve has been inverted since December 9, 2022, a new record. So far this month, the 10-year AAA muni yield at 2.98% has risen 5 basis points. The 30-year at 3.92% is up 4 basis points. Underwriters, particularly those active in competitive bidding are operating in a challenging environment, heavily reliant upon individual buyers to help clear the market as institutions have been less active for some time now. This week’s calendar is expected to total $6 billion with about 60 negotiated sales, including a $108.8 million charter school financing for Trinity Basin Preparatory coming through the Arlington Higher Education Finance Corporation and guaranteed by the Texas Permanent School Fund. In the senior living sector, we expect a $47.9 million BBB-minus rated transaction for Hamilton County, Ohio and Life Enriching Communities in Cincinnati.

Prime Bond-Buying Season

With stocks, gold, silver and bitcoin all down almost mid-way through the last month of the quarter, we invite you to discuss your portfolio with your HJ Sims representative. Many investors are heavy in cash and money market funds right now, but it may be a good time for you to lock in some higher yielding, longer duration bonds. Our traders scour the markets throughout the day to find tax-exempt and taxable bonds that meet the specific criteria and investment guidelines presented by our clients through their brokers and advisers.  This is prime bond-buying season, and we are suited up on your team.