Market Commentary: Week of February 27, 2023

Last Week

Another brutal repricing in the rates markets took place, last week. Fed bank presidents and board governors took to the airwaves and lecture podiums all week reiterating that the war against inflation was far from over. Additionally, the minutes of the Fed’s December FOMC were released, showing that all members believed more tightening was needed and a “few” members could be convinced to go 50 basis points at the March meeting. And then, Friday’s January PCE report came out much stronger than expected and bedlam ensued.

Market expectations, as indicated by OIS swaps, have changed dramatically over the last two weeks. For the week ending February 10, OIS swaps indicated that the Funds rate had one or perhaps two 25 basis point hikes in the first half of 2023 and then easing priced in for the latter half with the expected peak funds rate of 5.18%.

As of this morning, OIS indicates at least three 25 basis point hikes in 2023 with a peak funds rate of 5.47%. Stocks sold off hard on Friday while corporate credit spreads widened modestly for the week. Muni spreads stabilized some and Agency MBS spread to Treasury widened about 4 basis points.

• The S&P 500 fell 02.67% for the week. The average daily move was 0.94%.
• The NASDAQ dropped 3.33% for the week. The average daily move for the week was 1.26%.
• The 2-year Treasury yield surged 20 basis points, closing at 4.82% on Friday, a new year-over-year high. High year-over-year 4.82%, low yield 1.34%.
• The 10-year Treasury yield increased 13 basis points for the week, closing at 3.95% on Friday. Year-over-year high yield 4.24%, low yield 1.73%.
• The VIX Index jumped 8.24% for the week, closing at 21.67 Friday. Year-over-year high 36.45 and low 17.87.
• The MOVE Index surged 11.56%, closing at 122.84 on Friday. Year-over-year high 160.72 and low 91.76.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads were increased by 4 basis points for the week closing at 77 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 21 basis points, closing at 465 basis points on Friday. Year-over-year high 627, and low 355.
• U.S. Dollar Index rose 1.3% for the week closing at 105.21 on Friday. Year-over-year high 114.11 and low 96.025.
• WTI Crude was nearly unchanged for the week, using the April 2023 WTI Futures contract, closing at 76.34 Friday. Year-over-year high 123.70, and low 71.02.
• Gold, as measured by the April futures contract declined 1.78% for the week closing at 1,815 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,623.
• Bitcoin fell 5.66% for the week closing at 23,102 on Friday. High price year-over-year 47,967 and low 15,632.

The Week Ahead

We come in this morning with stocks up about half a percent while Treasury yields are up small. The yield curve continues to invert with 2s-10s currently at 87 basis points.

This morning, we get the January Durable Goods report. Bloomberg’s poll of Wall Street economists expects a mild month-over-month increase. This week, we also get a slew of housing, labor cost, and manufacturing activity reports.

Needless to say, the markets are on edge. Good luck, players.

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 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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