- We should see a strong January and a decent finish this year, with pricing moving down over the last couple of days. I believe these moves are attributed to tax loss selling and think they will only last for a while. January historically has been a strong month for our markets. In January, $17B bonds are scheduled to mature, and another $3B will be called. Not including any interest, investors will most likely reinvest a solid $20B back into the market.
- The next FED meeting will be on 1/31; therefore, we have a long runway to trade. We all know the FOMC will increase rates; however, the big question is how much. I suspect 50bps. However, should they move that to 25bps, you would continue to see a rally in our markets as we move into February. As building slows, spending is contracting, and PPI/CPI numbers slow, you could see a minor rate move…. this will be determined by the economic numbers, which will be coming out mid-month.
- Visible supply continues to slow, coming in at $1.5B this week, well below the $9.95B average. This number has come down significantly this year, topping $14.5B mid-year. This number tells you the overall flow will be slow, and paper will be hard to come by. With January numbers looking strong for capital coming into accounts, we suspect the rally should continue through the month.
- Many economists think there is a 7 in 10 likelihood the U.S. economy will sink into a recession next year, slashing demand forecasts and trimming inflation projections in the wake of massive rate hikes. The probability of a downturn in 2023 climbed from 65% odds in November, higher than six months ago. I am unsure if this will happen; however, MUNIs do well in this environment as many will want a "risk off" trade in their portfolios. It will be interesting to see how the overall “soft landing” plays out if it does.
- Homebuilder sentiment fell every month in 2022. It sank in December to a level not seen in over a decade outside the pandemic amid elevated mortgage rates and high construction costs. The National Association of Home Builders/Wells Fargo gauge dropped 2 points this month to 31, the lowest level since June 2012, excluding the onset of the Covid-19 pandemic, figures showed Monday. The uninterrupted slide this entire year represents the longest stretch on record. This year's rapid climb in mortgage rates crushed buyer demand for homes. At the same time, higher costs for materials and labor have made it more expensive to build. The combination has weighed on builder sentiment and new construction.
- According to U.S. Census Bureau data, state tax revenues increased 6.7% to $322.9 billion in the third quarter compared to last year. Tax receipts rose $20.3 billion from last year and fell $144 billion, or 31%, from the previous quarter. Among the ten biggest states by tax revenue, Texas increased the most, up 18% from the year-earlier quarter to $21.8 billion, while California fell the most, down 5.2% to $51.6 billion. We have been buyers of Tax Backed paper and continue to be. I suspect many states will show "steady" tax revenues for 2023, making MUNIs an attractive asset.
David Loesch
dloesch@drlgroup.net
605-B Park Grove
Katy, TX 77450
866.664.4040 (toll-free)
281.398.8600 (direct)
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