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    Market Insights | 5 min read

    Market Commentary: Week of August 8, 2022

    Last Week

    Last week was completely dominated by the non-farm payroll data for July, which came in blistering, blowing away even the most aggressive forecast. The change in payrolls more than doubled the average Wall Street estimate (528,000 vs 250,000). Average hourly earnings rose 5.2% year-over-year versus the average estimate of 4.9%, and the unemployment rate came in at 3.5% vs 3.6%. 

    Moreover, nearly all the revisions to the June report were positive. Last week, I did warn that the markets were making a mistake in thinking that the Fed was going to take its foot off the gas prematurely. If you were betting by being long duration, especially in the front-end of the yield curve you lost, a lot. Looking at Fed Funds Futures and OIS swaps, we came into last week with a 50-basis point hike in the policy rate on September 21 and only a 25% chance of a 75-basis point raise. At the close on Friday, the chance of a 75-basis point hike was 75%. 

    Additionally, looking out to the curve in 2023, the market is still pricing in a Fed easing mid-year, but a lot less than where it was at the beginning of the week. We look for that pricing to correct as we march through the rest of 2022. 

    • The S&P 500 rose 0.36% for the week. The average daily move was 0.55%.  
    • The NASDAQ rose 2.16% for the week. The average daily move for the week was 0.77%.  
    • The 2-year Treasury yield jumped 34 basis points closing at 3.23% on Friday. High year-over-year 3.43%, low yield .20%.
    • The 10-year Treasury yield increased 18 basis points for the week, closing at 2.83% on Friday. Year-over-year high yield 3.47%, low yield 1.24%.
    • The VIX Index was flat for the week, closing at 21.15 Friday. Year-over-year high 36.45 and low 15.01.
    • The MOVE Index increased 5.3% for the week, closing at 122.58 on Friday. Year-over-year high 156.16 and low 51.73.
    • 5-year Investment Grade Corporates (as measured by Markit CDX) spreads increased 1basis points for the week closing at 81 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 7 basis points, closing at 464 basis points on Friday. Year-over-year high 588 and low 273. 
    • US Dollar Index rose 0.7% for the week closing at 106.62 on Friday. Year-over-year high 108.54 and low 92.03.    
    • WTI Crude dropped 10% for the week using the September WTI Futures contract, closing at 89.01 Friday. Year-over-year 123.70, and low 62.32.   
    • Gold, as measured by the December 2022 futures contract, rose 0.5% for the week closing at 1,773 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,700.
    • Bitcoin fell 4%, closing at 22,985 Friday. High price year-over-year 67,734 and low 17,785.

    The Week Ahead   

    We come in this morning with stocks up and the Treasury yields a bit lower from Friday’s close. The second quarter earnings release continues to roll on. The results have been mixed, but the forward guidance has been given through the prism of high and sticky inflation. 

    Speaking of inflation, we get July CPI this Wednesday. Most Wall Street estimates are calling for a slight decline from June’s tragic numbers. Unless there is a big miss to the downside, I still see a repricing continuing for the short end of the yield curve in the form of continued bear flattening. Wednesday should be a hoot, good luck!

    ImageDefinitions:

    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, and 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.

    Investing involves certain risks, including possible loss of principal. You should understand and carefully consider a strategy’s objectives, risks, fees, expenses, and other information before investing. The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice. Such views do not take into account the individual financial circumstances or objectives of any investor that receives them. All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees, and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.

    Securities are offered through SWBC Investment Services, LLC, a registered broker/dealer. Member FINRA & SIPC. Advisory services offered through SWBC Investment Company, a Registered Investment Advisor, registered as such with the US Securities & Exchange Commission. SWBC Investment Services, LLC is under separate ownership from any other named entity. SWBC Investment Services, LLC a division of SWBC, is a nationwide partnership of advisors.

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    John Tuohy

    John Tuohy is CEO of SWBC Investment Services, LLC, a Broker/Dealer and SWBC Investment Company, an SEC Registered Investment Advisor (RIA). In his role, John is responsible for identifying, developing, and executing the division's strategic plan and all business development, sales, and marketing activities.

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