So a month that brought pretty darned spectacular gains to quality preferreds and baby bonds has come to a close. January was spectacular for many of the higher quality preferred stocks, which is somewhat contrary to what one would expect as many times (most times) when a strong rise comes to income issues the junkier high yield issues perform better than the investment grade issue. Oh well it only goes to show that once you think you know everything something new occurs which goes to show all of us that learning never stops.
The DIIA traded in a range of 24,324 to 25,193 before closing at 25,064. The 10 year treasury started the week at 2.76% before falling all the way to 2.63% before rebounding to close the week at 2.69%.
The average preferred stock closed the week at $23.93 which is up 20 cents on the week. There are 226 different $25 issues trading at $25 or less–even after recent strong rises in prices.
Last week we had numerous important economic reports and/or developments. Consumer confidence fell sharply to a reading of 120 against last month 126.6. ADP employment gains came in a 213,000 new jobs versus last months 263,000. Pending home sales dropped 2.2%, which continues to show softness in the housing market. The employment report showed that the unemployment rate rose to 4% even with a huge 304,000 new jobs being created, although there were very large revisions of last months reported last month which kind of neutralized some of the gains. The employment report showed that wages moved higher, year over year, at a 3.2% clip.
Of course the biggest economic news of the week was the lack of any rate hike in FED Funds and a pretty dovish commentary from the Chair, Jay Powell. With the press conference our take is that the FED will actually pay attention to data, instead of having any preset course for interest rate hikes. Additionally Powell mentioned that the size of the balance sheet is being studied. The balance sheet was at around $1 trillion in 2008 and grew to a peak of $4.5 trillion and now stands at $4 trillion after about $500 billion in run off.
For the coming week a few of the numbers that may matter is Factory Orders for December, the Services PMI, Manufacturing PMI, Productivity and Unit Labor Costs. Consumer Credit is also being released. I believe none of these will be held as important–but they aren’t important until someone decides they are important.
There were no new income issues floated last week, although the BDC Saratoga Investment Corp (NYSE:SAR) reopened their 6.25% baby bond issue (NYSE:SAF). Shares took a 50 cent knock on the news. Disclosure-we own this issue.