Broker Check

Market News & Commentary - From The Desk Of David Loesch 08.03.2023

August 03, 2023

  • Bank of America revoked its forecast for a recession in the US, becoming the first large US bank to officially reverse its call amid growing optimism about the economic outlook. This change occurred a week after Powell told reporters that the central bank’s economists were forecasting a recession. I suspect they will correct this stance; however, we could see a slowdown - not a recession. Either way, MUNIs should perform, and yields should move down over the next six months…near term, not sure, but over time, we think they should.
  • US Factory orders contracted for the 9th straight month, reflecting tepid demand for American merchandise at home and abroad. These numbers will also play a role in Powell's decision-making process for rate changes. I do expect these numbers to continue to move down over time. 
  • Longer-term T bills continue to sell off as the market is repricing expectations of the FED's policy path, pricing out some rate cuts for the balance of the year. The T bills sell-off continues to put pressure on the MUNI market, "guilt by association" is what we see here.
  • Some economists forecast a T bill rally for year-end and a full-year rally for 2024. They are sticking to the view that the economy will slow, and the FED will be "less" hawkish. Along with a possible cut in the 1st or 2nd Q of 2024, many are indicating "now" is the time to buy Fixed income. Rate cuts will come once multiple job losses are realized (again, sadly).
  • After a string of encouraging data, markets are optimistic that the FED is done with its battle against inflation and that the US will experience a "soft landing" and a 2% targeted rate. We should see one more hike before year-end, but it will depend on the data showing signs of strength, pushing yields higher, as we saw last week.
  • Bond pricing will start to strengthen as we move through the balance of this year. The critical factor will be CPI and unemployment rate numbers staying stable. The persistent tightness of the labor market suggests that we will continue to see moves by the FED. 
  • For July and most of this year, longer-duration MUNIs have outperformed shorter bonds. Many investors seek to lock in rates in anticipation of lower rates soon. August should also be a good month for MUNIs, led again by the longer-dated paper. I suspect we will compete against T bills and the like over the next 30 days as investors seek yield. With many MM's yielding 4.97% and higher, that is a great place to park funds, and many investors are doing so.
  • August should have a negative net supply and be a heavy cash month. Many, including me, expect volatility to be more muted than in July. August has an estimated $48B coming back to bond buyers, up from $44B in July, and is historically one of the heaviest months for redemptions, with CA and TX leading the pack with maturities.

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David Loesch

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