Market News Commentary - From The Desk of David Loesch 10.31.2019Submitted by Tax Free Municipal Bonds/Fixed Income Specialists/DRL Group on October 31st, 2019
- Spreads on MUNI’s continue to tighten, and several articles a day come out about retail and institutional accounts chasing yield in this market. With yields still low, many investors are turning to the taxable MUNI markets to enhance their return. The wider spreads have been driven by a surge of taxable debt sales by states and municipalities in the second half of this year as rates have tumbled.
- Six more MUNI bond issues reported running into distress in October, bringing the total to 117 this year and marking the most defaults since 2015. This data underscores concerns among investors that the rock bottom yields we see in the high yield market are not providing enough compensation to investors. Justifying the risk has always been a question, with many more issues this year running into trouble, investors continue to look for yield – some understand the risk, while others do not.
- The US budget deficit continues to widen, 1Trillion in the latest fiscal year surging to the highest level since 2012 after Trump cut taxes and boosted spending. Some say that issue this will not make any difference as the debt ceiling continues to be raised, but it will cause a problem down the road, so MUNI’s should do well.
- With the election campaigns in full swing, many believe we have a new risk to businesses; a Democrat in the presidential office. Eighty percent of businesses oppose Warren's wealth tax, and 45% think it will reduce growth. This potential tax could be a developing issue that will impede growth next year. Concerning the above point, it will be an interesting year.
- Paul Tudor Jones and Steve Cohen joined a growing number of hedge fund managers warning that the stock market would slide on the prospect of a Warren presidency. Jones said the specter of the Democrat's wealth tax would cause a 25% drop in the S&P 500.
- BlackRock continues to bet on Junk MUNI's; this shift comes as the 3.8trillion MUNI market heads toward a second straight monthly loss as optimism about a deal between US/China, which has pushed yields up. The bottom line is that the China deal will continue to drive our markets.
- Moody’s published a report that indicated that CA and its local governments are facing a “heightened credit challenge” as the frequency of wildfires increases, and the traditional fire season lengthens. I do not foresee a downgrade soon; however, there is that possibility in the future.
- Consumers helped the US economy expand more than forecasted in the 3rd Q based on numbers this week. GDP grew at 1.9% annualized when the survey called for 1.60% growth. These numbers point to a good jobs number coming, with the rate decrease and good numbers, 1.7% is in the cards as mentioned.
This content is based on the opinions of David Loesch based on his review of articles from Bloomberg.com or CNBC.com.
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