Market News Commentary - From The Desk of David Loesch 03.25.2021

• President Biden’s tax plan to increase individual income tax will likely prove successful. He is planning the most significant set of tax increases since 1993. I think this will create an enormous opportunity for Munis within the highest income tax brackets. I feel like our market will increase, and investors will need to prepare for that.
• The number of funds from the $1.9T stimulus going to municipalities has gone from $350B to $513B; many states will be "flooded" with cash. I see new issue muni deals coming to a grinding halt over the next few months, and pushing pricing up, contracting our market.
• Treasury Secretary Yellen announced yesterday that she would work with Congress to ease the $10M cap on SALT deductions, a key focus for NY and NJ and other high-income tax states such as CA.  I suspect there will be a ton of options presented to Congress over the next few weeks. I do not foresee anything getting done soon until President Biden comes out with the complete tax plan he’s been discussing over the last two weeks.  SALT tax is good for our markets; any repeal of this will have a negative impact. I believe that these comments are very timely considering Jamie Dimon and David Solomon’s position on bringing their employees back to NYC.
• Many economists believe that the recent rise in US yields is primarily attributed to higher growth expectations. I feel the FED learned their lesson in 2013 when they started to taper their bond-buying, and rates increased significantly.  Demand for goods and services is driving this market, not policy shock.  Overall, this is a “good thing” and can be controlled, which should keep rates relatively low over the foreseeable future.
• With the 10T move yesterday and with the move again this morning, it seems like 1.75% is the “resistance point” as we move through this week. The FED will do everything in its power to keep rates low on all maturities, as borrowing will be heavy.  I believe inflation fears will subside (not go away), and markets will return to a typical trading pattern.  I would not be surprised if we saw the 10T move back to 1.72%; however, many forecasts it to move lower in yield over the next few weeks. 
• As discussed last week, Moody’s continues to lift the expectations of ratings on many issues, including US college and university debt.  Most of this debt was moved from negative to positive on the expectation that institutions will see improved revenue over the next 12-18 months, along with the funding boost from the FED.  Many expect campuses to return to normal in 2021 and also see gains from solid investment returns.  As we have discussed, the fundamentals on MUNI's remain strong and will improve over the next several months as funds from the $1.9T stimulus deal becomes available.
• Congress is formulating another stimulus plan - less than two weeks after the $1.9T deal was passed (zero Republican votes). President Biden’s advisers are preparing a long-term strategy of $3T for many programs, including infrastructure spending and the Green New Deal.  This plan will be interesting to watch, and I find it hard to believe that this deal will muster up enough votes to pass in its current form. However, I foresee another deal getting done around the $2T range over the life of his presidency.  We will need to trade around this issue as new details arise.  

David Loesch

dloesch@drlgroup.net

www.drlgroup.net

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