Market Commentary: Hidden in Plain Sight

Some puzzles in life and politics appear to be unsolvable. How to fully fund Social Security. Cure cancer. Achieve peace in the Middle East. Lose weight without giving up our favorite foods. Motivate a teenager. Stop worrying. Figure out how the other half thinks. Major universities around the world are teaching Design Thinking as a problem-solving strategy that can be used to challenge assumptions and redefine vexing questions in order to see things more clearly and find answers that are sometimes hidden in plain sight. The approach can be used in our daily lives to rid us of ingrained patterns of thinking and help us to make better decisions at home or improve how we are perceived by others at work. At Stanford University, Professor Bernard Roth is one of the engineers who invented the process, most often used to try and improve a specific product like smartphones or an experience like online shopping. He believes that using the strategy to achieve one simple goal can quickly lead to another and help us gain momentum toward an “achievement habit”. Language is a powerful tool in his strategy; swapping one word for another is said to make a huge difference in how we approach our goals. So, for example, instead of saying “I want to go to the ballgame but I have work to do” say “I want to go to the ballgame and I have work to do.” Instead of muttering “We have to sell something to raise cash” be positive and announce “We want to sell something to raise cash.”

We see how words shape behavior every day in the financial markets where cash is always being raised and invested. Remarks by Federal Reserve officials and tweets by the President can move markets instantly. The use of the ambiguous word “may” instead of the precise word “shall” in a Puerto Rico bond indenture led to a court ruling that caused downgrades on billions of entirely unrelated special revenue obligations on the mainland. Algorithms that trade based on words appearing in scans of millions of blog posts and news headlines can contribute significantly to market volatility. Stock, bond, money, commodity, foreign exchange, derivatives and other markets have been carefully listening to the words being used by U.S. and Chinese trade negotiators since the Trump Administration announced tariffs on solar panels and washing machines back on January 22, 2018. Since that time, the S&P 500 has risen more than 18%. It has not been a smooth upward trajectory, but for the last 5 weeks the stock market has certainly liked what it was hearing. As of the close on Friday, the Dow Jones Industrial Average is up 1,234 points to 28,004. The S&P 500 Index has gained 134 points and stands at 3,120. And the Nasdaq has risen 451 points to 8,540. During this period, oil prices are up 7.3% to $57.72 a barrel while gold prices have fallen more than $21 an ounce to $1,468. Positive news has some investors feeling comfortable with taking on more risk, so the haven sectors have sold off. So far this month, the 2-year Treasury yield is up 9 basis points to 1.61%, the 10-year has gained 14 basis points to 1.83% and the 30-year at 2.30% is up 13 basis points. Strong demand for tax-exempt securities as reflected in $1.3 billion of net inflows into municipal bond funds, the 45th consecutive week reported by Lipper, has cushioned some of the loss for munis but top-rated 10-year general obligation bond yields are up 6 basis points to 1.55% and 30-year yields are 9 basis points higher at 2.15%. The 2-year muni benchmark in November is flat at 1.11%.

State and local borrowers have again elevated the municipal primary market. Last week, there were $9.7 billion of sales including $12.95 million of non-rate revenue anticipation bonds issued by the Public Finance Authority of Wisconsin yielding 11% in 2024. HJ Sims structured this pre-development financing for Aldersgate at Shalom Park, a new life plan community to be constructed in Charlotte, North Carolina, with capital appreciation bonds. Also in the senior living sector, the Wisconsin Health and Educational Facilities Authority sold $206.4 million of non-rated revenue bonds for the St. Camillus life plan community including 2054 term bonds priced at 5.00% to yield 4.67%; the Northampton County Industrial Development Authority brought a $37.6 million deal for BB+ rated Morningstar Senior Living in Nazareth, Pennsylvania that had a 30-year maturity priced at 5.00% to yield 3.82%; and the City of Jonesboro, Arkansas issued $12.7 million of non-rated 6.50% bonds due in 2049 for Liberty Park. In the charter school sector, the Public Finance Authority had a $10.7 million non-rated deal for Colorado Skies Academy in Englewood due in 2025 and priced with a 5.625% coupon; and the Miami-Dade County Industrial Development Authority sold $8.6 million of non-rated revenue bonds for Excelsior Charter Academy in Miami Gardens with 2043 term bonds priced at 5.10% to yield 4.68%. The calendar also included a Ba1 rated Doylestown Hospital Authority revenue bond issue of $63.9 million structured with a 30-year maturity priced at 5.00% to yield 3.47%. The Maryland Economic Development Corporation sold $26 million of non-rated revenue bonds for The Children’s Guild in Baltimore priced at par to yield 6.50% in 2049. And the Arizona Industrial Development Authority brought a $24.9 million non-rated financing for Arizona Christian University in Glendale that featured 2049 term bonds priced at 5.625% to yield 5.70%

This week, the economic calendar includes data releases on housing starts, building permits, jobless claims, existing home sales, and consumer sentiment. The minutes from the last Federal Open Market Committee will be released. In Washington, the House continues with its impeachment inquiry and votes on another extension of funding for the federal government that would expire on December 20. The $11.3 billion municipal calendar includes six BBB-minus or Baa3 rated issues: a $153 million Franklin County, Ohio issue for the Greater Columbus Convention Center Hotel; a $134.5 million Connecticut Health and Education Facilities Authority financing for the University of Hartford; an $86.8 million Oklahoma Development Finance Authority deal for Oklahoma City University; a $62.4 million Phoenix Industrial Development Authority issue for student housing at Arizona State University; a $20 million Missouri Health and Educational Facilities deal for Wright Memorial Hospital; and a $10.5 million Colorado Educational and Cultural Facilities Authority issue for Science Technology Engineering and Math School. Also on the slate is a $31.9 million non-rated New Hope Cultural Education Facilities Finance Corporation transaction for Wesleyan Homes, and two Public Finance Authority sales: a $28.5 million non-rated issue for Lake Erie College, and an $18.1 million BB deal for American Preparatory Academy in Las Vegas.

The 30-day visible calendar totals $16.4 billion but we expect a light week next week due to the national holiday. Fifty-five million travelers are expected to take to the skies and roads to join family and friends for football and feasts next Thursday. We at HJ Sims look forward to celebrating this 398th very American holiday and wish you, and all who gather with you, safe travels and a very happy Thanksgiving.

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