Last Week It was a tough week. The biggest event was the reaction to the unforced error by U.K. Prime Minister Liz Truss’ ridiculous tax cut, deficit spending plan to heal the U.K.’s crumbling currenc...
The battle over the Federal Reserve’s policy narrative continued to rage last week as multiple Fed officials reiterated the higher for longer message against a backdrop of a strong risk asset recovery rally. Stocks continue to test the Fed’s resolve with thoughts of 2023 easing dancing in their heads. Given the way things have gone in the last four decades, it takes a brave soul to fight the equity rally as opposed to fighting the Fed!
We had a big selloff in stocks and a widening in corporate credit spreads on Friday as perhaps the Fed’s message is getting through. Looking at Fed Fund futures and OIS swaps, the probability of a 75-basis point hike at the September 21st FOMC meeting is approximately 65%. It should be noted that those same market indicators still price in a strong chance of the Fed stopping in the first quarter of 2023 and easing mid-year.
- The S&P 500 declined 1.2% for the week. The average daily move was 0.57%.
- The NASDAQ fell 2.62% for the week. The average daily move for the week was .86%.
- The 2-year Treasury yield dropped 1 basis point closing at 3.23% on Friday. High year-over-year 3.43%, low yield .20%.
- The 10-year Treasury yield rose 15 basis points for the week, closing at 2.98% on Friday. Year-over-year high yield 3.47%, low yield 1.24%.
- The VIX Index rose 5.5% for the week, closing at 20.60 Friday. Year-over-year high 36.45 and low 15.01.
- The MOVE Index surged 16% for the week, closing at 123.81 on Friday. Year-over-year high 156.16 and low 51.73.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 7 basis points for the week closing at 81 basis points Friday. High spread Year-over-year high 102 and low of 46.
- High Yield corporate debt (as measured by Markit CDX) widened by 50 basis points, closing at 471 basis points on Friday. Year-over-year high 588, and low 273.
- US Dollar Index jumped 2.4% for the week closing at 108.17 on Friday. Year-over-year high 108.54 and low 92.03.
- WTI Crude fell 1.4% for the week using the September WTI Futures contract, closing at 90.77 Friday. Year-over-year 123.70, and low 65.57.
- Gold, as measured by the December 2022 futures contract, declined 2.9% 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 dropped 12.2%, closing at 21,274 Friday. High price year-over-year 67,734 and low 17,785.
The Week Ahead
We come in this morning with stocks down a fair amount and the Treasury yields higher from Friday’s close. The yield curve, after taking a breather last week from the “Great Inversion”, is back at it this morning as 2s-10s are about 5 basis points more inverted. The big event this week is the annual summit of global genius at beautiful Jackson Hole. On Friday, Chairman Powell will speak at the conference.
My prediction for the conference is this; Multiple Fed speakers will show fire and brimstone, and yields will shoot higher, led by the front end of the curve and stocks will pummel. Then on Friday Chairman Powell will deliver his remarks in his congenial, levelheaded style, the markets will look for ANYTHING that is remotely “dovish”, and we will go into the weekend with a monster rally for stocks and bonds. Let’s see what happens!
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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