Daily Note | April 17, 2024 | PCF Rights Offering, BALT Looks Good Here, Gov Agencies.

Summary

• Markets open higher after a three-day losing streak, with interest rates remaining flat.

• Over the week, CEF real estate NAVs are down a whopping -7.5% with utilities down -5.2%, and MLPs down -4.3%. Preferreds are down -2.3% with agency MBS down about -2.0%.

• PIMCO Corp & Income and PIMCO Access Income have experienced significant corrections, while High Income Securities announces a non-transferable rights offering.

• PCF is conducting a rights offering in order to get a quorum at their shareholder meeting.  Its non-transferable.  I would look to unloading any shares you may have.

• BALT, a defined outcome ETF, looks like a good option here for the risk averse equity investor.

Dilok Klaisataporn

Markets are opening higher after a three-day losing streak where the S&P lost -2.9%. Interest rates are flat on the day with the 10-year hanging around 4.65% and the 2-year at 4.96%.

Is today setting up a deadcat bounce or have we weathered the brunt of the storm? The answer may be neither as markets chop sideways. This earnings season was expected to be one of the most volatile in history, based upon the average options-implied move and so far, this earnings season is delivering on that.

The biggest near-term catalysts will be MegaCap Tech earnings (NFLX tomorrow and most of Mag7 next week with NVDA May 22) and PCE (where we have seen divergence from CPI).

Separately, there are increasing concerns that the Fed will have to make a hawkish pivot given above-trend GDP growth (proxied by Retail Sales) and 3 consecutive CPI prints that show inflation moving higher relative to 23Q4.

Recent Fedspeak acknowledges that current stall in disinflation data but are not yet ready to say the trend is broken. The key remains shelter prices which has yet to reflect 2023’s disinflationary move.

Below is JP Morgan's strategic asset allocation with their current 'tilts'. They are actively underweight stocks and corporate bonds and overweight cash and commodities.

CEF NAVs were down across the board yesterday with all categories in the red. Loans fared the best being down only 13 bps as credit spread widening (something I noted would happen in the Weekly Commentary) offset higher short-term rates.

Real estate, utilities, MLPs, and EM equity were the worst performing NAVs yesterday.

For the trailing week, real estate NAVs are down a whopping -7.5% with utilities down -5.2%, and MLPs down -4.3%. Preferreds are down -2.3% with agency MBS down about -2.0%.