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Market News & Commentary - From The Desk Of David Loesch 06.10.2021

Market News & Commentary - From The Desk Of David Loesch 06.10.2021

June 10, 2021


  • The IRS indicated that tax-exempt interest has been declining on returns since 2018. The date from the pre-pandemic year of 2019 shows $6.2MM households claimed the tax-free interest of $60B down from$ 6.3MM claiming $62.6B in 2018.  I suspect the number of households will go up gradually and the dollar amount of interest to go down slightly due to lower coupons.
  • Yesterday, the State of NJ said they will have higher revenue ($5.1B higher) than originally expected. This increase is due to sales tax and corporation business tax.  Many states have also had these higher tax revenues - net positive for MUNIs.
  • It appears that a bipartisan effort has succeeded in trying to keep the infrastructure package moving forward, agreeing to pass a $761.8B deal over 8 years.  Together with the $487.2B in other spending, this total will come to $1.20T.  Biden initially wanted to pass a $1.7T deal.  The draft proposes to allocate $959B over 8 years for transportation, including $518B for highways, roads, and safety, $64B for bridges, and $156B for transit.  In addition, $120B will go towards Amtrak passenger rail and $41B will go towards airports. This massive bill will cause scarcity in municipal products because the municipalities will not need to issue bonds.  This should ultimately increase pricing with yields moving lower due to the lack of supply to the street.
  • A Bloomberg model replicated a CPI structure focused on forecasting CPI.  The results suggest a high and sustained peak over the summer with inflation starting to ease back in September of this year. This would test the FED and market confidence as it relates to inflation and raises concern about what happens to inflation expectations. Inflation numbers will be watched closely over the next several months, with the 10-year T trading where it is and MUNIs continuing to grind lower in yield. With the CPI number today posting at .6% MOM this was .1% above expectations.  Fixed Income markets are steady as of the morning of 6/10 with the 10T trading at 1.48% at the time of this writing, down from 1.68%.
  • Strong improvement in economic indicators implies the S&P 500 is fairly valued at the current levels. Better than expected earnings could push the index closer to 4500, many are forecasting larger gains would require an unlikely FED Reserve policy hold with no taper through 2022.  Many including me believe we will see small tapering at the end of this year and into the 1st Q 2022.  This will have little impact on our markets; however, the word "inflation" will be spoken about each day until we see reasons not to confront, which will not be this year. 
  • With one voice the FOMC says that it is too soon to tighten monetary policy.  As we all know, the FED will continue to keep rates at zero and longer rates suppressed.  The Central Bank continues to buy $120B of T Bills every month and there are no signs of this stopping anytime soon. Inflation fears will be prevalent should the job numbers be hot. Yields on munis should stay steady assuming this “tapering discussion” is handled in a manner of giving everyone an adequate heads up which I think will happen.


David Loesch

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