Market Commentary: Week of April 3, 2023

Last Week

Equities rejoiced last week surging over 3% as bank stocks recovered and Big-Tech roared. Bank stocks recovering seemed to make sense, at least for the “Too Big to Fail” bunch. On Thursday, the Fed reported that bank usage of the Fed’s funding facilities, including the discount window, came off a bit, so perhaps the fear in the markets on the banking crisis has subsided some. Big- Tech was probably more of a function of them making up such a huge amount of market capitalization as opposed to strong conviction. On Friday, the Fed’s favored inflation data measure PCE was released. The data showed that we are moving sideways at a very high, over 4% rate. The job of bringing inflation down is still far from over, nearly every Fed policy maker continues to state this very clearly, and yet the market has 2 policy rate cuts priced in for the rest of the year. My thoughts are perhaps a banking crisis keeps the Fed from going over 5.5% this year, a view that was held by many, including some policy makers just 3 weeks ago. However, I think the thought of the Fed cutting policy rates in 2023 is fanciful.

• The S&P 500 jumped 3.47% for the week. The average daily move was 0.75%.
• The NASDQ increased 3.37% for the week. The average daily move for the week was a 1.04%.
• The 2-year Treasury yield surged 26 basis points, closing at 4.03% on Friday. High year-over-year 5.07%, low yield 2.35%.
• The 10-year Treasury yield rose 9 basis point for the week, closing at 3.47% on Friday. Year-over-year high yield 4.24%, low yield 2.40%.
• The VIX Index dropped 13.98% for the week, closing at 18.7 Friday. Year-over-year high 34.45 and low 17.87.
• The MOVE Index crashed 21.74% for the week, closing at 135.93 on Friday. Year-over-year high 198.71 and low 97.33.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 9 basis points for the week closing at 76 basis points Friday. High spread year-over-year high 111 and low of 64.
• High Yield corporate debt (as measured by Markit CDX) spreads tightened 55 basis points, closing at 463 basis points on Friday. Year-over-year high 627 and low 362.
• US Dollar Index declined 0.54% at 102.51 on Friday. Year-over-year high 114.11 and low 99.  
• WTI Crude advanced 9.26% for the week, using the May WTI Futures contract, closing at 75.67 Friday. Year-over-year high 123.70 and low 66.74.  
• Gold, as measured by the May futures contract, declined 0.8% for the week closing at 1,986 on Friday. High price for the front contract year-over-year 1,996 and low 1,623.
• Bitcoin increased 2.81% for the week closing at 28,395 on Friday. High price year-over-year 46,312 and low 15,632.

The Week Ahead

We come in this morning with the front end of the yield curve getting hit hard with the 2-year note up about 9 basis points from Sunday’s close. Stocks are relatively flat. Over the weekend, oil producers led by Saudi Arabia announced a shocking oil shock, a 1 million barrels per day production cut. Crude is spiking. This certainly is not a welcome bit of news for inflation. Much of the “progress” on lowering inflation has come from falling energy prices. Now we could be seeing a reverse, which stinks because unlike consumer spending and business activity, the Fed cannot control energy prices somewhat directly with their policy tools. This production cut will be troublesome and should vanquish thoughts of a dovish Fed in any part of 2023. On Wednesday, we get the closely watched Job Openings and Labor Turnover (JOLT) and on Friday the March Non-Farm Payroll report. Another strong report is expected.  

Definitions:

An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg. The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield.• The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.• The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market, and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of the constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve-weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Telecommunications. Markit CDX indices roll every 6 months in March & September.• The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September.• The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.

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