Broker Check

Market News & Commentary - From The Desk Of David Loesch 12.07.2023

December 06, 2023

  • The FED stimulus during the pandemic provided timely support to US cities, states, and counties during unnerving times. The stimulus created "hope" during the uncertainty; however, as a result, it caused inflation, which killed the markets over time. With this said, some municipalities would have been downgraded without the stimulus, and we could have seen massive defaults across the system. Yes, inflation was the root cause of the bond market's demise; however, some wonder if it could have been avoided.
  • MUNI bond trading soared to an all-time high in November as SMAs bought paper, driving the market’s best performance since the 1980s. There were 1.5MM trades in November, a monthly record, and demand from individual investors also hit a record. I suspect December will be strong as well. Our trading volume was one of the highest in over 20 years last month; if that is any indication, we should see that continuing into December.
  • This week will prove a test for the markets, as there will be two large muni deals totaling around $3B coming to market. It will be interesting to see how the market absorbs these issues. Both deals are slated to hit the market Wednesday. We think yields will hold here, despite the amount of paper being issued.
  • The return of striking United Auto Workers to vehicle assembly lines will drive an increase in November payrolls, representing a pause in the recent trend of moderating growth. Such a print will leave the average job growth over the past three months down 10K from the pace it has seen earlier this year. All of this will be good for FI securities while helping to hold down yields despite point number one.
  • Walmart indicated they are seeing households pull back on spending. The splurge of buying over the summer has cooled, and they are warning they anticipate the slowdown will continue over the next few months. Does this mean the long-awaited US slowdown has begun? I don't know, but all the numbers point to that fact. Again, these news stories lead many to believe we are slowing down.
  • November was a good month for both FI and equities, a direct result of optimism in cooling rates. Some say we are in "overbought" territory, and I would lean on that side of this trade now. I suspect we will see rates "slowly grind lower" but not go straight down from here. I think we will see a pullback (yields move up); however, it will be hard to get back to 5% out long on munis.
  • Bloomberg reported yesterday that the typical signs of a recession started in October 2023. Their baseline is that unemployment should increase through 2024, approaching 5% by year-end. They said the Fed will have enough clarity about the downturn to cut rates for the first time in March, so Bloomberg reporting calls for rate cuts sooner rather than later; this is their baseline.
  • The MUNI yield curve remains inverted without debt due in 6 months, offering at 2.94% compared to the 10-year paper at 2.66% on AAA paper. Based on the persisting inversion level in US T and MUNIs, I suspect it will take more than one cut to push the curve back to an average level. The MUNI market has figured out how to navigate the inversion, but seeing this for this extended period is strange.
  • I suspect we will see more new issues in 2024, with rates moving down over time. There have been about $337B of long-term bond sales this year, and this is lackluster volume compared to $460B in 2021. I believe we will see around $400B in 2024.

The bottom line is that account values moved significantly last month, and we will not see that again in December. However, if you are a buyer here and last month, over time, you will average into this market as paper is +150bps higher than the first of the year. Yields should grind lower over time. If you are a buyer, consider continuing to buy in at these levels.

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.

We would love the opportunity to visit with you further. Please click here to schedule a call with one of our specialists or contact us at 281-398-8600.


David Loesch

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

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