October 29, 2017 – The U.S. economy expanded at a 3.0% annual rate in the third quarter, just below its 3.1% second quarter pace. The U.S. economy has now registered 3% growth in back-to-back quarters for the first time since 2014. Personal consumption expenditures increased at a 2.4% annualized rate despite the hurricane-related damage to Florida and Texas. This most likely reinforces the premise that the Federal Reserve remains on track to hike rates in December despite “core” inflation of only 1.3% as measured by the Personal Consumption Expenditure index, the Fed’s preferred inflation gauge.  Adding to the U.S. economic growth story is the budget resolution passing in both the Senate and the House of Representatives over the past two weeks which paves the way for tax reform. This resolution is especially important for Republicans because it will allow them, as the majority party, to pass tax legislation without any Democratic votes. The House is also preparing to introduce a bill into the Ways and Means committee, which, among other things, will provide details of proposed tax cuts and methods of generating revenue.

Buoyed by the GDP report and the prospects for tax reform, the S&P 500 Index gained 0.2%  for the week after gaining 0.9% last week, its seventh consecutive one-week advance. Fixed-income markets reacted differently as the yield on the 10-year Treasury rose to 2.46%, its highest level since March 17 as the Chart titled, “Rates and Credit Spreads” highlights.  

Picture10Credit spreads, as measured by Markit’s Investment Grade 5 year credit default swaps spread index, continue to tighten as growth picks up and corporate earnings remain strong.  For Alternative Lenders, continued low rates and tight credits enable a robust lending environment.  

CommonBond closed a $248 million securitization and received their first “AA” S&P rating. Similar to the first deal on the shelf, the senior tranche had a fixed and floating-leg. The fixed-leg priced 18 bps tighter than the prior deal at a 72 bps spread.  Mosaic priced MSAIC 2017-2, their second solar ABS. The deal was heavily oversubscribed achieving record tight execution levels with over $1.7 Bn in orders for a $307.5 million deal.

Opinions expressed within the commentary are general opinions of Chris Lalli  and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  TIAA-CREF, Wall Street Journal, PeeriQ