Market Commentary: Week of August 1, 2022

Last Week

It was quite a busy week as the Fed delivered another 75-basis point hike to the policy rate, while domestic and global economic data showed major economies slowing down sharply.

Concerning the U.S. on Thursday, the second quarter GDP contracted 0.9% marking two consecutive quarters of contraction, the technical definition of recession.

The markets did what they seem to do after the FOMC meeting as of late, a full-on equity and bond rally. The equity surge was aided by relatively good “Big-Tech” earnings and forward guidance as the S&P 500 got itself back over 4,000. Stocks feel like we may have seen the bottom a couple of weeks ago. Perhaps animal spirits are back?

I added some big-bank and big-energy stocks, not a ton but enough to quell the “Fear of Missing Out” feeling, for now.

• The S&P 500 surged 4.3% for the week. The average daily move was 1.3%.
• The NASDAQ jumped 4.7% for the week. The average daily move for the week was 1.9%.
• The 2-year Treasury yield dropped 9 basis points closing at 2.88% on Friday. High year-over-year 3.43%, low yield .10%.
• The 10-year Treasury yield dropped 10 basis points for the week, closing at 2.65% on Friday. Year-over-year high yield 3.47%, low yield .91%.
• The VIX Index fell 7% for the week, closing at 21.33 Friday. Year-over-year high 36.45 and low 15.01.
• The MOVE Index dropped 6% for the week, closing at 116.35 on Friday. Year-over-year high 156.16 and low 52.07.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 5 basis points for the week closing at 80 basis points Friday. High spread Year-over-year high 102 and low of 46.06.
• High Yield corporate debt (as measured by Markit CDX) tightened by 29 basis points, closing at 471 basis points on Friday. Year-over-year high 588, and low 273.
• U.S. Dollar Index fell 0.7% for the week closing at 105.9 on Friday. Year-over-year high 108.54 and low 92.03.
• WTI Crude rose 4.1% for the week using the September WTI Futures contract, closing at 98.62 Friday. Year-over-year 123.70, and low 62.32.
• Gold, as measured by the August 2022 futures contract, rose 2.1% for the week closing at 1,762 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,700.
• Bitcoin rose 6%, closing at 23,952 Friday. High price year-over-year 67,734 and low 17,785.

The Week Ahead

We came in this morning with stocks up a bit and the Treasury yield curve Bear-Flattening. Over the weekend, Minneapolis Fed President, Neel Kashkari, usually considered an uber-dove on monetary policy, stated that the Fed is a long way from easing and that “Inflation is very concerning and spreading out across the economy.”

Additionally, last Friday’s Employment Cost Index (ECI) printed another big number, increasing 1.3% after last quarter’s record-setting print of 1.4%. This reading should steel the Fed’s resolve to keep going and should disappoint those who think the Fed will be done tightening and begin easing in 2023.

Earnings week continues and we have a full plate of data for the week culminating in the July payroll report on Friday.

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 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 a 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 & Tele-communications. 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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