Uneasy Times
The employment read released today was at +390,000 employed and the unemployment rate was unchanged. Despite the strong reading, albeit it was under 400,000, equities traded off and rates were trending moderately higher. Some of the other surrounding developments were causing more consternation.
The Fed has three meetings before the midterm elections including June, July, and September. We heard from the Vice Chair that the previously announced hikes in rates will be adhered to, and perhaps more action will be taken beyond the already planned dates. We were also informed that it is considerably early to be having any discussions about changing course.
There are some signs of slowing. Talk of layoffs in the tech sector is causing some uneasiness. The jobs at stake are high paying. There is also more talk about how the lower wage jobs are going unfilled in part due to the high price for fuel to get to those jobs.
One industry leader in this past week mentioned that the “hurricane” is about to hit us. Recession is not a foregone conclusion at this point. The Fed tightenings may take some time to work. Most people holding public offices would not desire to have a recession before the vote in November. It may be that we get through the remainder of this year without a recession.
Investors are continuing to pick their investments quite carefully. Week after week energy and healthcare have been the top two sectors of the market. Tech has been trailing behind in part due to the higher rates.
Many have experienced significant losses in fixed income. There appeared to be a bit of a reprieve last week. However, after dipping below 3.0% the thirty year is back to 3.11%. Retail along with the institutional professionals are having a dilemma discerning the course of rates other than they are on a trajectory upwards over the near term.
For the first time in a long time, I heard municipals mentioned on the talk shows this morning. We usually hear about municipals when it is a slow news day, or it is a Friday. The tone of the discussion was positive and focused on the relatively high after-tax returns with very modest risk. Tenors were not discussed. The latter would have taken the conversation in a different direction.
We were heartened to see that there were inflows to the municipal mutual funds this week. We are well after tax time but the key date may still have had some effect.
On the credit side, the next focus should be on the final adopted budget of states and localities. Spending surpluses is a great temptation in an election year. With the spike in federal support tapering off and some concern about a slowing economy, the assumptions adopted in the budgets as passed will be of particular importance this year. Perhaps, the attendees at the GFOA meeting that starts on Saturday in Austin will be discussing this very topic.
Lower issuance of about $6 billion will be coming to market next week. Any account that has maturing paper in the near term will be taking a good look at the offerings. We would expect the market will be bid up given a bit of a scarcity factor.
John Hallacy
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