HJ Sims Market Commentary: Ticking Clocks

by Gayl Mileszko

The clock was built in 1947 by distinguished American engineers and scientists and it has been ticking away for 75 years now. For the past two years, it has been stuck at 100 seconds, an urgent wake-up call meant to tell us how close we may be to destroying our own world. The Doomsday Clock is an icon of the Cold War, created to draw attention to the threat to civilization posed by nuclear weapons. But the looming threats identified by the prominent group have since been expanded to include biological ones, climate change, artificial intelligence, and even the rapid spread of disinformation. Every year this group, originally comprised of those who worked on the Manhattan Project, consult with other experts and set the clock at a time that is meant to reflect the tenuousness of our existence. Initially the hands of the clock were set at seven minutes to midnight, and only once have they been moved backward: when the Strategic Arms Reduction Treaty was signed by Presidents George H.W. Bush and Mikhail Gorbachev of the Soviet Union in 1991, the world was said to gain ten minutes. But by 2002, the hands had moved back to seven minutes. And now the clock ticks down in seconds.

 Critics of the scientists and their scary timepiece say that they are being too political, that they issue false alarms and cry wolf too often, that their message is not helpful to the public or policymakers because when everything is portrayed as a crisis, nothing is a crisis. But in 2022, with COVID-19, inflation, backlogged container ships, terrorism, rampant crime, sharp political divisions calling into question the integrity of our election process, North Korean missile tests, Iran nuclear talks, and the seeming resurrection of the Cold War in Ukraine, we indeed feel surrounded by crises. Mainstream as well as social media, omnipresent in ways never imagined 75 years ago, provide constant reminders.

Weekly Market Update

The financial markets have veered between bloom and doom in January as the clock ticks down to central bank policy changes bound to shock investors who have grown accustomed to support from every direction for many, many years. As of the close on Tuesday, volatility as measured by the VIX is up 81%. The Dow is down by 5.6% so far this year, more than 2,000 points, to 34,297. The S&P has fallen more than 400 points or 8.6% to 4,356. The Russell 2000 at 2,004 is off by 241 points or 10.7%, and the Nasdaq at 13,539 has lost 2,105 points or 13.5%. The price of Bitcoin, a benchmark of cryptocurrencies, has plunged more than 20% to $37,303 while oil at $85.60 per barrel is up almost 14%, silver at $23.80 an ounce is up 2.2% and gold at $1,849 is $20 higher. Traders point to rising U.S. Treasury yields as responsible for much of the change, and Treasuries have moved higher along with expectations for policy moves by the Federal Reserve. Today’s meeting of the Federal Open Market Committee is seen as providing official guidance on the coming rate hikes, the end to asset purchases in March, and a clue on the timing of reductions in its $9 trillion portfolio, all of which are already assumed by investors, like it or not. The futures market is pricing in about 4.2 rate increases between now and December, with the first coming at the next Fed meeting in March.

Bond Yields

The difference between the 2-year and 10-year Treasury yields has been slightly narrowing, and some forecasters look ahead to an upside-down situation wherein the shorter maturity has the higher yield. We are still far from an inverted yield curve, but the concern is that it would herald a recession later this year.  Right now, the spread between the two is not alarming, 75 basis points: the 2-year yield is 1.01% and the 10-year stands at 1.76%. The benchmark 30-year long bond is at 2.11%, up 21 basis points since the start of the year.  The Baa rated 10-year corporate bond yield index has risen 35 basis points to 3.55%. Municipal bonds, defended by light supply, lots of cash for reinvestment, steady demand for tax-exemption, steadfastly outperformed governments and corporates early on, but have since underperformed their taxable counterparts.  The 2-year AAA general obligation muni benchmark yield at 0.66% has nearly tripled in 2022. The 10-year muni at 1.34% is 31 basis points higher, and the 30-year at 1.76% is up 27 basis points.

A Worldly View

Bumpy trading is expected all week as markets anticipate and react to an accelerating pace of change. Major movers this week aside from the big Fed announcement include action as well as rhetoric on the part of the U.S. and NATO allies in response to the Russian troop buildup in Ukraine. Inflation and Omicron are still at the top of the list. Fourth quarter corporate earnings, eight Treasury auctions, fund flow reports, the newly noisy digital dollar debate, talk out loud of super bubbles, and key economic data releases are also all factors in intra-day markets. Traders have an eye on China/Taiwan tensions ahead of the Winter Olympic games, and the unusual weapons-testing activity by North Korea. The municipal bond calendar could total as much as $8 billion but it is heavy with highly rated investment grade financings offering negative real yields. Volume so far this year is $20 billion, nearly double the level at this point last year as borrowers hurry to take advantage of rates that are lower than they may be in a few more months. The corporate bond market has quieted down ahead of the Fed meeting after a deluge of more than $28 billion in bank deals. Only about $6 billion of high yield corporate deals are expected this week, including the year’s first green issue. 

Primary Market

Despite the volatility which is producing longer bid-wanteds lists and selloffs generating negative returns for nearly every single asset class, borrowing rates are still near historic lows. In the muni market, the number of buy trades still exceed sales and new issues are still coming at premium prices. Last week, the Wisconsin Public Finance Authority issued $56.8 million of BB rated revenue and refunding bonds for Roseman University of Health Sciences in Henderson, Nevada structured with a 2052 term bond that priced at 4.00% to yield 3.53%. Also in high yield, the Delaware Economic Development Authority sold $20.9 million of BB rated charter school bonds for Aspira of Delaware in Newark that had a 35-year maturity priced with a coupon of 4.00% to yield 3.37%. In the senior housing sector, the Orange County Health Facilities Authority brought a $142.5 million A-minus rated revenue bond issue for Presbyterian Retirement Communities structured with 2047 term bonds with a 4.00% coupon yielding 3.50%. The Albemarle County Economic Development Authority had a $38 million BBB+ rated financing for Westminster-Canterbury of the Blue Ridge in Charlottesville structured with a final maturity in 2049 that came with a coupon of 4.00% yielding 2.57%; a $14.9 million series for forward settlement in October and due in 2054 priced with the same coupon to yield 3.05%.

This marks the last trading week of the first month of the year. It is a good time to reach out to your HJ Sims representative to set your goals for 2022, review your portfolio or borrowing plans, and discuss how to invest your excess cash. For those looking to broaden your horizons and enjoy the warm sun at the same time, we invite you to register to attend the HJ Sims late Winter Conference from March 1 to March 3 at the Loews Portofino Bay Hotel in Orlando. We have an agenda that will fascinate all with a stake in senior living. Among our keynote speakers is John Gerzema, the New York Times best-selling author and chief executive officer of Harris Insights & Analytics/The Harris Poll, a leading public opinion, corporate, brand and reputation strategy firm with more than 60 years in market research. He will offer some great insight on brand positioning and trends, message development, competitive intelligence, crisis management, and product launches. Join us for his remarks, as well as for a chance to enjoy the great outdoors at our golf tournament, or on our boating tour or Universal Studios scavenger hunt. Contact your HJ Sims representative for more details on our 19th annual gathering.

To set your financial goals for 2022 or for more information on our current offerings, please contact your HJ Sims representative.

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