Market Commentary: Rosy and Riveting

It happened gradually but steadily and, as with most tectonic and demographic shifts, the movement was only slightly surprising once detected. Nothing was evident if you watched the supermen of the Super Bowl on Sunday. Or if you followed the recent CSPAN coverage of Senate floor proceedings, reported for boot camp at Fort Benning, plowed the back forty, or sat on the board of a Fortune 500 company. But some of the major changes rooted in WWII’s call to duty continue to build. There are still differences in position and pay to be sure, but the fact is that women now comprise the majority of the U.S. workforce, and the majority of the college-educated labor force. The Labor Department’s December payroll data reported that women hold 50.04% of U.S. jobs. Bureau of Labor Statistics numbers show that they comprise about 50.2% of workers with college degrees. The developments are rather ho-hum for college administrators who first saw women receive more than half of all bachelor’s degrees awarded in the 1981-82 academic year and who are now accepting more females than males into law and medical schools. But the numbers give pause to government statisticians, actuaries, insurers and social scientists, office designers, auto dealers, hoteliers, restaurant managers, clothing designers and many others, all hustling to adjust for, and cater to, a changing workforce.

Employment statistics for January will come out on Friday and forecasters are expecting our unemployment stats to stay a half-century low, with the rate for adult women at 3.2% and adult men at 3.1%. The U.S. expansion is in its eleventh rosy year, still growing at more than 2% per annum, borrowing rates are at historic lows, wages are rising. The President, in his third State of the Union Address — before House members who impeached him and Senate members about to acquit him — recapped the numbers and touted his priorities for the coming months. The world listened in for clues on what might come next from the White House during what promises to be a tumultuous election year, starting with the botched caucus results in Iowa on Monday and now moving up north to New Hampshire for the primaries next Tuesday where five women and nineteen men are competing for the Democratic nomination. Investors, weathered by years of savage political banter, are virtually inured to the political headlines and will not start paying attention until after the conventions. The laser-like focus of Wall Street and global financial centers is on the 2019-nCov coronavirus and the unprecedented efforts undertaken by the Chinese government to contain the spread with the largest mass quarantine in history. The direction of stocks and bonds has spun around like a weathervane in trade winds shifting with the latest updates from health officials and economists.

The first month of the new decade was riveting for U.S. bonds. While the S&P 500 fell 0.04% to 3,225 and the Dow was down 0.89% to 28,256, the U.S. Treasury index gained 2.56% and corporate bonds were up 2.38%. Treasury yields plummeted: the 2-year fell 25 basis points to 1.31%, the 10-year dropped 41 basis points to 1.50% and the 30-year sank 39 basis points to 1.99%. The S&P municipal bond index returned 1.63% and the high yield muni index was up 1.98%. Hospital bonds in the ICE BoAML sector index saw 2.18% gains and munis with maturities of 22 years and longer rose 2.32%. And taxable municipals, enjoying renewed attention for the first time since Build America Bond issuance a decade ago, simply outperformed most every sector and asset class with returns of 5.29%. At month end, the 10-year AAA taxable muni yield was 2.16%, down 37 basis points since the year began. The 10- and 30- year AAA tax-exempt general obligation bond yields fell 29 basis points to 1.15% and 1.80%, respectively. Municipal bond funds took in $8.9 billion of new money, setting a new 56-week record for investment. If you can even find a municipal bond to buy in this $3.8 trillion market, where dealer inventory is at 5-year lows, you will generally pay more than you did last month and the month before that. Prices are through the roof and, as Municipal Market Advisors warned, there is an “absence of investor credit discernment.” In this market, investors are encouraged to carefully review credits with their HJ Sims advisors in the context of their individual risk tolerance profiles.

February begins the month with another onslaught of cash from municipal bond redemptions, maturities and coupons. A total of $23.8 billon is expected to come due this month, while the supply of new issues looks to total only $13.1 billion. This week, the municipal slate is expected to add up to $7.5 billion, and is heavy with taxable university and tax-exempt hospital bonds. In the high yield sector, the City of Minneapolis is bringing a $7.9 million non-rated charter school lease revenue bond issue for Northeast College Prep. At HJ Sims, we are preparing for our Late Winter Conference in San Diego with a lineup of enlightening speakers, informative panels, and recreational activities ranging from golf to fishing, catamaran sailing and trolley tours. We invite you to join us at the Intercontinental Hotel from February 25 to 27 in the city known as the birthplace of California.

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