Market Commentary: Week of February 13, 2023

Last Week

The reality of the prior Friday’s blowout January employment report sunk in with traders right from the get-go last week. Suddenly, the hopes of a Fed pivot were dashed as the labor market shows no signs of letting up, which means the Fed has no plans of easing up anytime soon.

Why so many have doubted the Fed’s resolve on this issue is perplexing. Perhaps it is because probably 90% of those in trading seats have never seen real adversity in the form of the Fed bringing the pain as opposed to holding their hands and putting the kiddie-bumpers in the gutter?

The 2s 10s Treasury curve inverted as much as 88 basis points during the week. The last week that spread was that inverted was around the time of The Miracle on Ice at the 1980 Lake Placid games!

Meanwhile, stocks took a rather good pounding after a stupendous January. Many are now calling the January rally a big ol’ bear trap. There’s probably some truth to that but with labor super strong and consumer spending still quite robust, where’s the recession? Hard landing, soft landing, how about no landing! It seems the Fed has a lot more work to do in 2023 and companies who are debt junkies are going to suffer while the more established, stronger balance sheet names could do quite well.

• The S&P 500 fell 1.11% for the week. The average daily move was 0.82%.
• The NASDAQ dropped 2.4% for the week. The average daily move for the week was 1.24%.
• The 2-year Treasury yield surged 23 basis points, closing at 4.52% on Friday. High year-over-year 4.72%, low yield 1.34%.
• The 10-year Treasury yield increased 20 basis points for the week, closing at 3.73% on Friday. Year-over-year high yield 4.24%, low yield 1.73%.
• The VIX Index increased 12% for the week, closing at 20.53 Friday. Year-over-year high 36.45 and low 17.87.
• The MOVE Index advanced 10.75%, closing at 109.36 on Friday. Year-over-year high 160.72 and low 91.76.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 4 basis points for the week closing at 73 basis points Friday. High spread year-over-year high of 111 and low of 64.
• High-yield corporate debt (as measured by Markit CDX) spreads increased 23 basis points, closing at 442 basis points on Friday. Year-over-year high 627, and low 341.
• U.S. Dollar Index rose 0.69% closing at 103.63 on Friday. Year-over-year high 114.11 and low 95.701.
• WTI Crude rose 8.63% using the March 2023 WTI Futures contract, closing at 79.72 Friday. Year-over-year high 123.70, and low 71.02.
• Gold, as measured by the April futures contract, declined 0.1% for the week closing at 1,875 on Friday. High price for the front contract year-over-year is 2,043 and the low is 1,623.
• Bitcoin declined 7.88% for the week closing at 21,541 on Friday. High price year-over-year 47,967 and low 15,632.

The Week Ahead

We come in this morning with stocks a touch higher and the Treasury yield curve back to inverting with the 2-year up about two basis points and the 10-year note down about two basis points.

The big event for the week is the BLS January CPI report on Tuesday. A shocker came out late last week the used car prices had stopped declining and have now reversed course. Used car prices were key to inflation first soaring and then in the last few months, dropping. Therefore, this could affect the CPI some to the upside.

However, the market has been reacting to this potential bad news in the last couple of trading sessions so maybe we will get a little, “Sell the rumor and buy the news?" Perhaps.

Retail Sales for January also come out this week on Wednesday. That could be a market mover as well as there has been a good amount of focus on the continued strength of consumer spending and balance sheets.

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 & 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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