Stock markets will close at noon (central time) on Monday and reopen at normal times on Wednesday.
Well not much can be said about last weeks stock market action except that it pretty well sucked for everyone. Whether you owned common shares, preferred shares or baby bonds you likely took a good spanking. Folks like to compare this particular market to other historical markets–BUT there is no comparison-we have never had a $4 trillion dollar balance sheet being unwound, coupled with a falling 10 year treasury and rising Fed Funds rates. So it is new–without precedence, and it can be pretty damned scary.
Last week the DJIA traveled in a range of 22,396 to 24,088–a range of around 1,700 points before closing the week near the low at 22,445. The 10 year treasury, which has had little meaning for income investors, moved in a range of 2.75% to 2.89% closing at the 2.79% level. There is not much doubt that the bond market is signaling a slower economy ahead. Additionally there is a rush to ‘safety’ in treasuries—why would I want 2.79% on a 10 year treasury when I can hide in money market funds paying me 2.25% on their way to 2.40%?
Last week was totally dominated by news on the Fed Funds rate hike which was 1/4% as we expected. What was not expected by us was the somewhat hawkish tone set by Jay Powell. From a market perspective he screwed up big time–why the hell would you toss fuel on the fire when you could simply convey to the markets that you are data dependant without preconceived notions of rate hikes ahead. What is done is done. Last week we had the Home Builders Index released on Monday and it was softer than expected. Housing starts were announced slightly better than expected and Existing Home Sales were above forecast. Housing numbers overall were pretty flattish. The 3rd quarter GDP revision came in .1% light–no big deal. Durable goods orders came in on forecast. Consumer spending was right on forecast and surprising to us was that Consumer Sentiment was better than forecast–this will fall like a rock next month.
For the coming week we will have a light economic release calendar with nothing of consequence being released until Wednesday when Case-Shiller home prices being announced. On Thursday we have Consumer Confidence being released for December–we will be interested in how this one shakes out with the market turbulence. We also have New Home sales being released Thursday. On Friday we have the Chicago purchasing managers index and pending home sales.
The Fed Balance sheet had a runoff of $4 billion last week. It is funny to hear so much discussion by the ‘talking heads’ on TV about the runoff. We have been discussing this on site for the entire year–we all knew this was going to be meaningful at some point in time. We started putting a note in the Monday Morning Kickoff each week in April because we knew it was meaningful then.
Last week, once again, we had no new income issues announced–who the heck wants to sell a new issue into chaos. OFS Credit did file an updated prospectus for a new term preferred issue which they had originally announced a month or more before–but nothing final here.
It was a very bloody week for $25/share preferreds with the average share off 63 cents–we do not recall a weekly loss of this magnitude for many years. Additionally we have 329 issues trading at $25 and below. Just for reference we had around 147 issues trading at $25 or below as recent as September.