Last Week The front end of the Treasury yield curve went on another wild ride last week. Relief over a debt ceiling deal triggered a 25-basis point drop in 2-year rates in the middle of the week only ...
Last week started with a downside surprise to November CPI on Monday, the first real sign that perhaps inflation has peaked in the U.S. Risk markets rejoiced like a holiday office party, reserved and cautious in front of Wednesday’s FOMC statement and Chairman Powell press conference. The December meeting statement was nearly identical to the prior meeting statement, the 50-basis point hike was consistent with market projections and the Fed “Dot-Plot” showed a tight consensus of a 5.1% policy rate for 2023.
Chairman Powell’s press conference stayed on the Jackson Hole message, “Keeping at it until the job is done.” Powell gave a nod to Monday’s CPI report but repeatedly stated that inflation is still far too high, final victory is not visible on the horizon, policy needs to tighten further, and likely stay restrictive for longer. Stocks seemed to ignore just about everything that Powell said and got their rally on.
Bond yields, however, seemed to heed the Wednesday message a bit more and tread water. On Thursday, appeared to get the message and began to price in a Fed-induced recession by falling hard. The Treasury curve dis-inverted as the 2-year note dropped 16 basis points in yield, in what appeared to be a flight to quality rally, and risk assets were pummeled.
- The S&P 500 fell 2.06% for the week. The average daily move was 1.27%.
- The NASDAQ dropped 2.73% for the week. The average daily move for the week was 1.45%.
- The 2-year Treasury yield plunged 16 basis points, closing at 4.18% on Friday. The high year-over-year was 4.72% and the low yield was 0.40%
- The 10-year Treasury yield fell 9 basis points for the week, closing at 3.49% on Friday. The year-over-year high yield was 4.24% and the low yield was 1.345%
- The VIX Index declined 0.9% for the week, closing at 22.62% on Friday. The year-over-year high is 36.45% and the low is 16.29%.
- The MOVE Index retreated 14.4% for the week, closing at 113.65 on Friday. With a year-over-year high of 160.72 and a low of 72.57.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads increased 3 basis points for the week closing at 83 basis points Friday. With a high spread year-over-year high of 111 and a low of 49.
- The high Yield corporate debt (as measured by Markit CDX) increased by 10 basis points, closing at 489 basis points on Friday. With a year-over-year high of 627 basis points and a low of 288 basis points.
- The U.S. Dollar Index ended the week nearly unchanged, closing at 104.7 on Friday. The year-over-year high is 114.11 and the low is 94.79
- WTI Crude advanced 4.56% using the February 2023 WTI Futures contract, closing at $74.46 Friday. The year-over-year high is $123.70 and the low is $68.23.
- Gold (as measured by the February futures contract) declined 0.56% for the week closing at $1,800 on Friday. The high price for the front contract year-over-year is $2,043 and the low is $1,645
- Bitcoin dropped 1.6% closing at $16,837 on Friday. With a high price year-over-year of $67,734 and a low of $15,632
The Week Ahead
Led by the 10-year Treasury Yield, up about 9 basis points— we come in this morning with stocks relatively flat and yields sharply higher.
We have a lot of top-tier data coming out this week. Most of the data will come out on Thursday and Friday, which should be fun as we approach the holidays. That will drain liquidity from the markets as the week rolls on. I predict the largest numbers will be November PCE, which reports on Friday.
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 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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