Monday Morning Kickoff

In a holiday shortened week the DJIA traded in a range 24,244 to 24,860 before closing at 24,737. Even thought the end of the partial government shutdown was known before the market close there was little to no reaction to the development.

The 10 year treasury traded in a range of 2.70% to 2.78% before closing at 2.75% for the week.

Last week we had existing home sales announced on Tuesday at 4.99 million against a forecast of 5.1 million and 5.33 million against the year ago period. This is the lowest rate in over 3 years. On Thursday we had the PMI manufacturing report come in at 54.9 against a forecast of 53.8 while the PMI services report came in at 54.2 against a forecast of 54.4. Also Thursday we had the leading economic indicators released at -.1% versus the previous reading of .2%. Friday there were a number of economic releases originally scheduled (durable goods, capital equipment order and new home sales) which were all delayed.

For this week we have lots of economic news–ALTHOUGH THERE IS A HIGH LIKLIHOOD THE ECONOMIC DATA WE REVIEW BELOW WILL BE DELAYED because of the government shutdown (ended, but obviously behind in data)

On Tuesday we have Case-Shiller home prices being released. This will be interesting to see if it validated sales weaknesses. We also have the consumer confidence index for January being released with a forecast of 124 versus 128.1 in the prior month-we need to see if this number comes in weak reflecting the government shutdown and political acrimony. Wednesday we have the ADP employment report for January. We also are slated to have GDP for the 4th quarter. Also pending home sales for December are to be released Wednesday. Lastly Wednesday we have the FOMC meeting announcement – highly likely to indicate no Fed Funds rate increase. More importantly is the Powell press conference after the announcement. Thursday we have the employment cost index, personal income, consumer spending and core inflation. Friday we have many more reports. Non farm payrolls are forecast at 177,000 new jobs being added–of course after the forecast missed by 100,000 or so last month who can trust any forecast. With the employment report we have hourly earnings released. We also have consumer sentiment being announced Friday.

Last week the Fed Balance Sheet fell by $3 billion–which is a total for the last 3 weeks of $9 billion. This means we could see a big drop in the balance sheet either this week or next OR we might see the Fed back off in the balance sheet reduction schedule (currently in the $50 billion/month area). There have been hints that the Fed will be backing off the the balance sheet reduction schedule previously announced-we may hear more info from Fed Chair Powell on Wednesday.

We had 1 new income issue announced last week from Citizens Financial Group (NYSE:CFG) sold a 6.35% fixed to floating rate preferred with the floating rate beginning in 2024 with a spread of 3.642% added to 3 month Libor. The issue is now trading on the OTC Grey market under ticker CFGLL and last traded at $25.33. The issue is rated BB+ by Standarf and Poors–1 notch below investment grade. We purchased a position in this issue.

There are now 243 $25 preferred issues trading at $25 or below and they are trading at an average price of $23.73.