Broker Check

Market News Commentary - From The Desk of David Loesch 12.10.2020

December 10, 2020

  • Large transportation systems in the US are struggling to retain cash flow. Many are pleading with Congress for FED funds to avoid deep service cuts and layoffs while warning that an economic comeback depends on mass transit. MTA's, and the like, will most likely receive help (MTA has already tapped the liquid facility) as we move through the 1st Q of 2021; the Biden/Yellen/Powell group will be very open to spending money on items such as this.
  • Fund Flows continue to be heavy as investors added $1.37B to muni bonds funds in the week ended December 2. I suspect this trend will continue, and you will continue to see yields move down based on this.
  • US officials indicated they would have enough COVID vaccine doses to let most Americans get inoculated by next summer while downplaying reports that they passed up a chance to secure more of Pfizer's drug. As we get closer to the spring of 2021, we will have a better picture.
  • Benchmark 10-year paper for states: CA .87, FL .79, IL 3.27, NY .75, PA .97, and TX .76 all down ~5bps over the last week.
  • Overall, MUNI's are moving due to optimism, confidence, vaccine news, FED backing, and a ton of cash in the system.
  • Mnuchin made a surprise "re-entry" into talks on a 2020 relief package with $916B proposed that opened a new path for negotiations. The new plan includes $160B in aid for state and local authorities, which would directly positively impact our markets
  • Fitch rating service cut NYC, and its outlook was revised to negative by S&P. The rating cut is on $38B of their GO debt; the move was to AA- from AA. This negative outlook means that NYC has a 1/3 chance the rating services will lower the current rating over the next two years. With the "meager rates" of employees returning to work in the city, the potential for long-term negative impact is higher than in most cities. NYC is facing a $3.8B budget deficit in the next fiscal year, and private employment is still 14% below the pre-pandemic levels. I am not concerned about NYC defaulting; however, with the credit ratings moving down while being placed on negative, I suspect you will see movement in the bonds.
  • Visible supply begins the week at $13.3B, below the yearly average of $14.5B. The biggest sale this week is Puerto Rico, surprising they can bring items to the market during their restructuring. I expect the new issuance will be lower as we move into the balance of this year, creating a push down in our markets' yields.
  • The striking deceleration in the November jobs report, which came out Friday, serves as a warning of a tough road ahead for the US economy. Service sector hiring showed a sharply negative response to the restrictions in place for retail and restaurants. Many anticipate a significant decline in payrolls in December, which should produce a flight to quality trade over the next three weeks. Overall deteriorating economic momentum is moving into 2021, and many do not see the labor market getting back to "normal" until 2022.
  • Investors are back buying American airports betting that travel will rebound once the vaccine's widespread distribution is administered. Even junk-rated bonds tied to the airline industry have rallied, driving them to nearly a 5% return in November, the biggest gain since 2009. Many portfolio managers like the airport sector; with their strong financial positions, most will weather the storm.

David Loesch

605-B Park Grove

Katy, TX 77450

(866) 664-4040 (toll-free)

(281) 398-8600 (direct)

(281) 398-8607 fax

This report has no regard to the specific investment objectives, financial situation, or needs of any particular recipient. This report is based on information obtained from sources believed to be reliable, but no independent verification has been made, nor is its accuracy or completeness guaranteed. This report is published solely for informational purposes and is not construed as a solicitation or an offer to buy or sell securities or related financial instruments. Opinions expressed herein are subject to change without notice and the division, group, subsidiary, or affiliate of MACC., which is under no obligation to update or keep the information current. The securities described herein may not be eligible for sale in all jurisdictions or to specific categories of investors. MACC accepts no liability for any loss or damage of any kind arising out of the use of this report. Please contact your tax advisor regarding the suitability of tax-exempt investments in your portfolio. Income from municipals may be subject to state and local taxes as well as the Alternative Minimum Tax. Corporate and Municipal securities are subject to gains/losses based on the level of interest rates, market conditions, and credit quality of the issuer. As with any security, there is an inherent market risk possibility as to principal if the security is not held to maturity. The non-rated (NR) bonds should be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.

Securities are offered through Mid Atlantic Capital Corporation (MACC), a registered Broker-Dealer, Member FINRA/SIPC.

The DRL Group. is not a registered entity or a subsidiary or control affiliate of MACC.

Bonds are subject to market and interest rate risk if sold prior to maturity. Prices and availability may change at any time without notice. Insured bonds are subject to the claims-paying ability of the insurance company.

Reminder: Email sent through the Internet is not secure. Do not use email to send us confidential information such as credit card numbers, change of address, PIN numbers, passwords, or other important information. Do not email orders to buy or sell securities, transfer funds, or send time-sensitive instructions. We will not accept such orders or instructions. This email is not an official trade confirmation for transactions executed for your account. Your email message is not private in that it is subject to review by the firm, its officers, agents, and employees. Unless expressly stated in this email, nothing in this message should be construed as a digital or electronic signature.