HJ Sims Market Commentary: Webs of Belief

by Gayl Mileszko

The total amount of data in the world as of 2020 was estimated to be 44 zettabytes, or 44 trillion gigabytes, and every day since then we have created about 2.5 quintillion bytes more. So how do we handle this vast pool of information available to us, with more arriving constantly throughout the day and night?  Our brains have about 86 billion neurons or cells, but only a small percent handle our ability to adjust to changing environments and concepts. Circuits created by these neurons help us to adapt, but the average person processes as much as 74 gigabytes of data every day via cell phones, TVs, computers and other gadgets. Brain areas responsible for seeing, hearing and feeling learn to work together to filter things and, over time, get better at honing in on that which is most meaningful to us, assessing threats and opportunities, and ignoring less important things. But it is so easy to become overwhelmed by the onslaught of news, distracting and vying for our brain’s attention.


In order to be able to function amid all the information flow, we tend to create what some term a “web of belief”, a core logic, whether it is in fact logical or not. It is our way of trying to reinforce the knowledge claims we have with data that is agreeable, and root out anything useless, irrelevant or contradictory. It is not unlike the safe pandemic cocoons we created in our homes, only these webs are something we fashion in our minds.  If, in the course of our day, we come across some data or claim that does not fit into the fabric of our web, we will likely cast it aside as erroneous. We might ponder a misfit for a millisecond and label it an anomaly, something unusual, nothing really worth another thought. Sometimes, however, new information, conditions, behaviors, or people shake us up, and cause us to take a closer look, maybe even reconsider what had been a core tent, a long-held belief. 


Many personal webs of belief have been completely altered during the pandemic. Those campaigning for public office count on many webs to be recast close to election day. It is happening again this year as voters have become laser focused on inflation, mortgage and interest rates, immigration, and crime, among other issues.  In recessions and war, even the oldest, strongest and most intricate of webs are ripped apart in the struggle for employment, income, health, safety and survival. On Wall Street, it seems like at the start of every trading day we have to reconstruct a new web of belief as we take in the day’s new onslaught of economic data, geopolitical shifts, Treasury auction results, corporate earnings, the actions of Congress, the President, the Federal Reserve, and the Supreme Court, unexpected major moves by algorithmic traders and regulators, and reassess the probability of one or more Black Swan events.

No October Surprises… So Far

The Bank Panic of 1907, the Crash of 1929, and Black Market Monday 1987 all happened in October and the psychological black cloud hangs over markets this month, stocks in particular. However, the data show us that October has historically heralded the end of more bear markets than the beginning. This time, because there has been so much governmental and central bank interference in the past decades, it is hard to make any historical comparisons.  Despite the fact that we have exceeded $31 trillion of debt for the first time, that the 10-year U.S. Treasury yield sits at the highest since October of 2008, the latest Bloomberg Economics forecast model showing a 100% probability of the U.S. falling into a recession in the next 12 months, and  Fed futures trading indicating that rates will end the year as high as 4.75%s and remain there through next September, some markets appear to operate under very rosy webs of belief. 


This has been a good month for muni and equity investors as well as traders rooting for higher oil prices. For those who enjoy lots of market data, we are happy to oblige. As of the close on Monday, the 2-year AAA general obligation bond municipal benchmark yield at 2.95% is down 14 basis points in October. The 10-year muni yield at 3.13% has fallen 17 basis points, and the 30-year at 3.74% has dropped 16 basis points. The Nasdaq has gained 0.9%, the S&P 500 is up 2.6%, the Russell 2000 is 4.3% higher and the Dow is up 5.1%. But oil prices have climbed 7.5% to $85.46, gold has slipped slightly to $1,657 and Bitcoin has lost 1%. Treasuries and corporate have been harder hit. Bond volatility as measured by the MOVE Index has risen 6% in October. Treasury yields have been inverted since July 5. At this current writing, the 12-month at 4.49% yields more than the 2-year at 4.44%, the 10-year at 4.01%, and the 30-year at 4.02%. Treasuries across the yield curve have increased by 17 to 25 basis points this month and the 10-year BAA corporate bond index yields are up 32 basis points.

Market Movers

Traders have been focused on the tangled web of messages coming from the Chinese national communist party congress in Beijing this week, as well as on war news in the Ukraine and policy upheaval in the United Kingdom. Saturday marks the beginning or a blackout period for Federal Reserve speakers, so officials are hurrying to share views at nine public events this week. Economic data releases range from industrial production to housing starts and existing home sales, the Beige Book, and jobless claims. Strong third quarter earnings beating expectations are buoying equities. Many investors are focused on mid-term elections, now less than three weeks away; concerns involve potential major policy shifts, gridlock, potential market disruptions during the lame duck session with key matters including federal government funding and debt ceiling still pending. As some households and institutions revamp portfolios to either become more defensive, take on new risk for higher yield, or trade for tax purposes, we see a major move to liquid instruments. Tax-exempt money market fund assets under management have risen to $105 billion. Municipal bond exchange traded funds took in a net of $842 million last week while taxable bond ETFs added $1.7 billion and equity ETFs netted $4.7 billion.

Yield Opportunities Abound

In the last holiday-shortened week for bonds, municipal secondary market trading was active with $13.5 billion par changing hands every day, and customer buys exceeding sells even as municipal mutual bond funds had net outflows totaling $3.1 billion. We saw virtually nothing price in the primary high yield muni sector but the top 20 most actively traded tax-exempt securities all had coupons between 4.25% and 7.5%. High yield corporate bond sales featured a $400 million 5-year refinancing by B3/B rated AMC Entertainment that came at a 15% yield. This week’s municipal calendar is expected to total $8 billion including a $99.1 million BB+ rated Illinois Finance Authority deal for Plymouth Place and a $17.9 million non-rated Town of Hamden sale for Connecticut’s Whitney Center. The slate also includes a $10.4 million non-rated deal for Northwest Ohio Classical Academy issued through the Toledo Lucas County Port Authority. On the corporate side, Carnival Holdings is in the market with its ninth sale since the start of the pandemic; the B2/B+ rated deal was just upsized to $2 billion and features a 10.375% coupon.

We invite your contact with an HJ Sims representative this week to discuss current offerings and review your strategies for year-end and for 2023.

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

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