(Chicago)

You might not pay much attention to them—most don’t—but closed end muni funds are an excellent deal right now. They are offering high yields relative to other fixed income peers. For example, you can readily get 5% yields on CEF muni funds, equivalent to an 8.45% taxable yield if you are in the top tax bracket. And to be clear, these are not junk muni bonds. The reason yields are so strong is leverage gained from borrowing money at short-term interest rates and buying longer-term bonds. That usually creates a risk that short-term rates could rise, causing losses. However, given the Fed’s position right now, that seems highly unlikely.

FINSUM: This is an ideal time to by CEF muni funds given the low rate risk and solid overall yields. Check out BlackRock’s MFT (5.39% yield), Putnam’s PMM (5.18%), or BNY Mellon’s LEO (5.56%).

(New York)

It seems to all be crashing down as we write. The markets had just eliminated all losses for the year and were above or near all-time highs (e.g. the Nasdaq). However, the market has all he hallmarks of irrational exuberance—indexes priced for such unlikely perfect outcomes that they just can’t stand. At 22x forward earnings, valuations are right around where they were in the tech bubble. The economy is likely to take two years to recover from the virus, but the markets only took two months.

FINSUM: The market seems to be getting a reality check this week. Legitimate fears of a second wave are growing as re-opening states are seeing hospitalizations surge.

(New York)

There has been a major change in the stock market’s attitude toward the president over the last several weeks. For a long time, the market was very concerned with Trump winning. If Trump looked weak in polls, it was bad for markets. According to RBC, for the last 12 months, the S&P 500 has moved mostly in line with Trump’s odds for reelection. According to the bank, ““For the past year, expectations as to whether Trump will win again in November (as tracked by the betting markets) have been moving in sync with S&P 500 performance … But that relationship has broken down a bit in early June, with Trump’s chances (according to the betting markets) falling and the S&P 500 surging”.

FINSUM: Markets care much more about the economy than they do Trump, and everyone seems to be betting that COVID stimulus will keep going even if Trump loses.

(New York)

The New York Times has published an interesting piece this week which argues that markets and investors are ignoring an ugly and disastrous reality: that the economy is suffering a huge and largely unprecedented collapse in demand. New data out of Europe and Japan, as well as US manufacturing demand, this week showed that demand fell sharply in May, a sharp contrast to the employment jump. The NYT argues that this systemic fall in demand will take time to play out, but that the huge decline in employment and change in behaviors will cause a rupture in demand that will play out over years.

FINSUM: The NYT piece is very bearish. We held off on covering it until new data was released overnight showing a big fall in demand.

(New York)

The public and the media are flabbergasted at how the US stock market has seemed to defy everything we are seeing in “real life”. As of Friday, however, things started to make a little more sense because of good job numbers. Given the general disconnect between markets and the economy, it is important to take a step back and digest what markets really seem to be saying. In our view, the message is clear: not only is the economy going to bounce back, but a year from now, things are going to be better than they were before COVID.

FINSUM: The markets are making a very bold call and essentially pricing for perfection. However, it might not be that unrealistic. If the Fed and the government remain very accommodative, it is not outside the realm of possibility that by the end of June 2021, the economy is larger and potentially healthier than in Feb 2020.