Economic Commentary
- The delayed CPI report will be released on Friday October 24th.
- The Philadelphia Fed business outlook declined to -12.8, down from +23.2 last month and below the +10.0 expectation. Their non-manufacturing activity index declined to -22.2, down from -12.3 last month.
- The NY Fed services business activity index declined to -23.6, down from -19.4 last month.
- The national average price for a gallon of gasoline has fallen below $3 for the first time since last December.
- 85% of those S&P 500 companies that have reported third-quarter earnings have surpassed estimates, the highest percentage since 2021. Admittedly this is a small sample size as only 20% of companies have reported.
Our take: The macroeconomic situation has been relatively quiet on account of the lack of available data during the government shutdown. We would not expect this calm to persist, as markets seem tenuous and hypersensitive to early signs that the risk on behavior across all asset classes (the more speculative the better) might be coming to an end. While the lower end consumer has been struggling, higher income cohorts have benefited from asset price appreciation to supplement their wages. If there were to be a pullback in some or all of these asset prices, it could trigger a freeze in consumer spending.
Corporate Bond Market Commentary
- IG spreads tightened 1bp to +80bp and total returns were +0.51%.
- IG fund flows were +$2.24 billion.
- IG new issue supply was $26.3 billion across eight issuers, below expectations of $30 billion. Book coverage was 3.7x, NICs were only 1.6bp, attrition was 14%, and deals were tightened 28bp on average from initial price talk to final pricing.
- HY spreads tightened 14bp to +304bp and total returns were +0.53% (BBs +0.55%, Bs +0.54%, CCCs +0.36%).
- Fund outflows were -$1.3 from HY bonds and notably -$1.3 billion from leveraged loan funds.
- New issue supply was $4.55 billion but only across three deals – Momentive, Ferrelgas, and the Google-backed data center deal Terawulf.
Our take: Concerns around stress in the US financial system eased somewhat as large banks offered favorable outlooks on consumers and the economy. However, trade issues are percolating again, throwing more potential wrenches into corporate planning. Mattel specifically cited tariff uncertainty delaying Christmas orders as the reason for a weaker Q3 report. The remaining several weeks of earnings season should continue to produce volatility and both winners and losers.
Municipal Bond Market Commentary
- The municipal bond market index returned +0.53% last week. October is currently tracking +1.19%, which would be the first positive October in six years.
- Muni yields were +5bp, -3bp, -7bp and -9bp and ratios were +2%, unchanged, -1% and -1% to 67%, 62%, 69% and 89% at 1, 5, 10 and 30 years respectively.
- Fund flows were +$1.087 billion, with $1.219 billion into ETFs and $132 million out of mutual funds.
- Forward supply into year-end is not as onerous as originally feared. October supply is shaping up to be down ~23% from last year.
- Last week’s new issue volume was $11.8 billion of which $10.5 billion was tax-exempt. This week’s calendar totals $15.9 billion.
Our take: Concerns about elevated new issue supply over the balance of the year weighed on the minds of investors, especially knowing that October is a seasonally weak month for principal and interest reinvestment payments. The lifting of this cloud should improve supply / demand technicals for favorable performance into year end.
Important Information
Investors should consider a fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a fund. To obtain a prospectus, visit www.sheltoncap.com/ or call (800) 955-9988. A prospectus should be read carefully before investing.
It is possible to lose money by investing in a fund. Past performance does not guarantee future results. Any projections or other forward-looking statements regarding future events or performance of markets, companies, or otherwise are not necessarily indicative or differ from, actual events or results.
INVESTMENTS ARE NOT FDIC INSURED OR BANK GUARANTEED AND MAY LOSE VALUE.
