Market Commentary: Week of August 21, 2023

Last Week

Last week saw perhaps a change in sentiment from the “Goldilocks” economic and rate scenario that has been driving risk assets the last few months. As bond yields, especially longer duration borrowings continued to rachet higher the sharp slowdown in the world’s second largest economy, China, has moved front and center to give stocks a nice one-two punch. Real Treasury yields (TIPs) are now the highest they have been in twenty-one years with 30-year real yields solidly over 2%. One economist called this price action, “Price discovery in a post-QE world.” Economic reports such as retail sales and industrial production, as well as the Federal Reserve Bank of Atlanta 3^rd Quarter updated GDP projection of 5.8% continue to point to an economy that is withstanding historic monetary restrictiveness.

• The S&P 500 declined 2.11% for the week. The average daily move was 0.66%.
• The NASDQ fell 2,59% for the week. The average daily move for the week was 0.94%. 
• The 2-year Treasury yield rose 5 basis points, closing at 4.95% on Friday. High year-over-year 5.07%, low yield 3.30%.
• The 10-year Treasury yield rose 10 for the week, closing at 4.26% on Friday. On Thursday the note made a new year-over-year high of 4.28. Year-over-year high yield 4.28%, low yield 3.02%.
• The VIX Index increased 17% for the week, closing at 17.30 on Friday. Year-over-year high 34.45 and low 12.91.
• The MOVE Index rose 7.47% for the week, closing at 120.51 on Friday. Year-over-year high 198.71 and low 97.33.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 5 basis points, closing at 71 basis points on Friday. High spread Year-over-year high 111 and low of 64.
• 5-year High Yield corporate debt (as measured by Markit CDX) spreads widened 25 basis points, closing at 455 basis points on Friday. Year-over-year high 627, and low 408.
• US Dollar Index rose 0.52% closing at 103.38 on Friday. Year-over-year high 114.11 and low 99.77.
• WTI Crude declined 2.31% for the week, using the October WTI Futures contract, closing at 80.66 on Friday. Year-over-year high 97.01, and low 66.74.  
• Gold, as measured by the December futures contract, declined 1.59% for the week, closing at 1,917 on Friday. High price for the front contract year-over-year 2,056 and low 1,624.
• Bitcoin dropped 11.28% for the week closing at 26,071 on Friday. High price year-over-year 31,386 and low 15,632.

The Week Ahead  

We start the week this morning with Treasury yields continuing to head higher while equities are getting a bid of a bounce. It is Jackson Hole time! The best and the brightest will gather at the Fed’s annual symposium high in the Tetons to solve all our problems. Last year Fed Chairman Jerome Powell finally got his message in order with a blunt statement that he was going to “Keep at it until the job is done.” This year the Chairman speaks on Friday under the title “Economic Outlook”.  I expect the main message from Mr. Powell to be that progress has been made on the inflation front but there’s still a lot more to do, mainly by keeping policy rates higher for longer and continuing balance sheet runoff or Quantitative Tightening. Most probably the Chairman will highlight the strength of our domestic economy and that a “soft landing” remains possible.

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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