Weekly CEF Market Report - May 10, 2021
Macro Picture
The Friday rally following the very disappointing US jobs report erased a large portion of the losses earlier in the week. The major indices ended mixed with the Dow doing well and the Nasdaq recording its worst weekly loss in two months. As I've been saying for months, the rotation is likely to continue out of growth and into value. My go to fund has been YAFFX/YACKX, VTV, and VIOV (small cap value).
The jobs report was obviously the big news on the week. I saw estimates as high as 1.5Mmm new jobs for the month of April. It came in at a fraction of the average estimate (+1mm) at 266K. Restaurants and leisure was the best category as the reopening continued, adding 331K. The unemployment rate rose from 6.0% to 6.1%. March gains were also revised lower.
This should further calm inflation fears. Wage gains were high though at +0.7% indicating some tightness in the labor market. This could be the distortion being created by the bonus unemployment and could be mitigated once that rolls off.
We had some other downside surprises in economic data including ISM at 60.1 (well below the 65 estimate), and March construction spending rising much less than expected.
The 10-yr yield briefly touched a two-month low at 1.49% before recovering to the mid-1.5s. Munis recorded positive results for the week but underperformed treasuries.
I still think keeping the cyclical, rotational (i.e. value from growth) trade on makes sense. I did "rebalance" a bit this week taking some out of my equity bucket and putting into safe (this is the first time I've done this in quite some time as I've wanted to keep the octane on as long as possible). The amount moved was small but my equity has been zooming.
Commentary
Discounts continue to march higher and hit fresh 8-year record highs. I check the RiverNorth discount info chart against my own every day. And the percentage of observations that have been tighter since 1996. In the last week, we ticked down 3 points to just 14%. Nearly all of those observations came from 2011-2013, 2002-2003.
In muni CEFs, the story is a bit different. Muni CEF discounts have tightened up a bit and the spread between them and taxable bond CEFs has closed in the last month. The average muni CEF discount is now just -1.6% so the spread is about 2%, down from nearly 4% in March. Again, I still think these are going to a premium which is why my "CEF portfolio" is so skewed towards muni over taxable.
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