Broker Check

Market News & Commentary - From The Desk Of David Loesch 12.14.2023

December 14, 2023


  • The rate hold yesterday was widely expected, and the FED acknowledged the tightening cycle's end. The FED is sending strong signals the tightening cycle is over, and the post-meeting comments indicated very little pushback against the idea of imminent rate cuts. The new plot sees downward revisions to the FED Funds Rate path, with 2024 at 4.60% vs. prior 5.10% and 2025 at 3.60% vs prior 3.9%.   The officials have kept their unemployment forecast, expecting it to peak at 4.10% in 2024. More surprisingly, they also revised up the natural rate of unemployment to 4.10% from 4%. The key takeaway from Powell was that the first cut would be before the inflation rate hits 2%; waiting until inflation hits his target rate will be "too late.” The FED showed a willingness to endorse market pricing of rate cuts. 
  • Fitch reported that economic growth will cool in 2024, but overall macro conditions will remain neutral for US states and governments. Strong reserves, liability reductions, and other prudent management measures leave state and local governments well-positioned. As we have been discussing, quality bonds do not have a credit problem; the issues have all been rate-related. Fitch also mentioned that they expect employment, income, and GDP to slow, but the US would avoid an outright recession. 
  • MUNI funds are still selling, and those funds are moving into individual MUNI bonds. This point explains part of the rally we experienced. I suspect there is tax selling in mutual funds and buying in individual bonds. We continue to see individual CUSIPs bought as the street is a net buyer and has been for a few weeks.
  • As we have discussed, supply is low, and after last week’s "bump up" with those bonds out of the market, I suspect we will have a low supply for the balance of the year and the first two weeks of January. Today, supply sits at 4.60B as the markets prepare to wind down for the year, which will hold rates steady
  • PPI was 0.00% on 12/13, which was expected by the street. PPI’s final demand came in at .9%, down from 1.2%, which should help the markets. The bottom line is that the numbers continue to stay weak.
  • History tells us should the economy move into a recession; the FED typically acknowledges this about five months after it started. Even then, discussions about whether the economy is in a recession often lack decisiveness, with members spending several more months debating whether to drop rates. I suspect it will be late Spring when the FED recognizes this.
  • If we are in a recession (some think it started in October), it will be in February or March that the FED will begin to discuss. They will ponder around, then finally cut in the summer.

The bottom line is that yields are lower and steady as we write this. Overall supply is slim and will remain slim until the 2nd week of January. There will be large cash balances from coupons and maturing bonds in the market in January, maintaining solid buying interest. The FED remains dovish/neutral. We are locking in yields here, and no one can say this is the “right time," but the market feels stable with the recent economic news. 

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

dloesch@drlgroup.net

www.drlgroup.net

605-B Park Grove

Katy, TX 77450

866.664.4040 (toll-free)

281.398.8600 (direct)

New Edge Securities, Inc. has no affiliation with Bond Desk Trading LLC, Bond Trader Pro, Tradeweb Direct, Bondpoint, TMC, or any other ECN. Yield to call (YTC) does not indicate total return; this yield is valid only if the security is called. Bonds may or may not be called or be callable on multiple dates or, in other cases, called on any date following the first call date, so yield to call is based on the earliest stated call date. Discounted bonds may be subject to capital gains tax. Bonds may be subject to OID (Original Issue Discount). Prices and availability may change at any time without notice. Do not buy discount bonds based on the Yield to Call (YTC). Insured bonds are issued for timely payment of principal and interest only. Insured bonds do not cover potential market loss and are subject to the insurance company's claims-paying ability. Non-rated (NR), With-Drawn (WR), or below investment grade bonds, lower-rated bonds carry a greater potential risk of default & should be considered by sophisticated investors only. Bonds may be subject to capital gains tax. This summary is for informational purposes only and is not an offer or solicitation for the purchase or sale of any security or a recommendation or endorsement of any security or issuer. New Edge Securities, Inc. and DRL Group make no representation about the accuracy, completeness, or timeliness of this information. Bonds could also be subject to the DeMinimis Rule; please consult your tax advisor for further clarification.

As with any investment, the market value may vary during the period the investment is held. Subject to prior sale and market conditions. This offering is in limited quantity. Please take advantage of them before they are gone.

This report does not regard any particular recipient's specific investment objectives, financial situation, or needs. 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 to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Opinions expressed herein are subject to change without notice. The division, group, subsidiary, or affiliate of NewEdge Securities, Inc., 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. NewEdge Securities, Inc. 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. Municipal income may be subject to state and local taxes and 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. Non-rated bonds (NR) should only be considered for investment by knowledgeable and sophisticated investors. Additional information will be made available upon request.

Securities are offered through NewEdge Securities, Inc., a registered Broker-Dealer and member of FINRA/SIPC.

The DRL Group is not a registered entity, subsidiary, or control affiliate of NewEdge Securities, Inc.

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

Bonds could also be subject to the De Minimis Rule; please consult your tax advisor for further clarification.

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

Call us at 281-398-8600 to invest in these or any of our other offerings today.