Broker Check

Market News & Commentary - From the Desk of David Loesch 04.18.2024

April 18, 2024
  • Yields are higher, flow is strong, and availability exists for those seeking paper. Overall, yields will still move down over time. However, it will take longer than anticipated, as we have realized. Investors who buy here should be happy a year from now, both on the short and longer end of the curve. Long-term outlook while staying with quality will be a good ride once rates finally come down. We are past the “rising rate " period (we think), but we must be patient while waiting for Chairman Powell and the Fed Reserve Board Committee team to lower rates.


  • Consumers’ spending showed a notable increase in March but continued to exercise caution, particularly with big-ticket items. This trend indicates that while nominal income growth supports consumer activity, individuals are mindful of high rates and are carefully choosing their purchases. Eventually this should impact CPI numbers one would expect.


  • Several FED Reserve Bank Presidents indicated there is “no urgency” to adjust interest rates, all pointing to a strong economy. Many are citing the 2% target rate, which, in my opinion, will be tough to achieve, which we have been indicating for the last 1.5 years.


  • Many banks have “dialed back” their estimates on rate cuts, specifically BOA, Goldman, and Morgan Stanley. CITI feels these banks are going out on a limb making these claims. It's unsure if CITI believes we will see three rate cuts or not. In any event, I suspect one or maybe two this year, and I feel, along with others, that the economy is too hot to provide for more.


  • Bloomberg reported yesterday that they feel the FED will cut 50bps (down from 100bps) this year, and if the jobless rate stays around 3.80%, they may not cut at all. On 4/16, Powell spoke at a meeting and indicated rate cuts “may take longer than expected.”


  • The US economy has expanded slightly since late February, and firms are reporting difficulty in passing along higher costs to consumers. The fact is, consumer spending barely increased overall, and reports were entirely mixed on spending over the districts of the US. Some reports as of yesterday indicated weaker spending when it comes to discretionary spending, and consumers' price sensitivity remained elevated. This indicates you are seeing a slight slowdown in spending, which is not enough to make a note of now, but we will see what May brings. 

Bottom line:

  • Yields are up +20 bps over the past 2.5 weeks
  • We are buying <2.5-year paper and 15-20 year paper, belly of the curve IMO does not offer value, while sticking with quality.
  • We think rates move up slightly from here ~+5 bps or so -- however keep in mind, April is typically a rough month for MUNIs for various reasons, one being taxes
  • We are seeing BK’s in lower quality paper as recently as 4/8, be mindful of what you own





 

At The DRL Group, we specialize in helping high-net-worth investors maximize tax-free returns by proactively maintaining their custom bond portfolios through all market conditions.

 

 

David Loesch

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)

 

 

 

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