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 ...
Capital Markets
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4 min read
Last Week
Last week saw the kind of price action you’d hope to see for stocks if you want a smart rebound from the nightmare of 2022, a string of up days that resembled more of a grind than a moon-shot. On Friday, the VIX fell well below 20 setting a year-over-year low of 18.35 Friday. Some of the main drivers for celebration were a December CPI report that showed inflation continuing to cool somewhat, a broad commodities rally as the prospect for a Chinese economic re-opening grew, and a milder than expected winter (and perhaps recession) in Europe. The big banks started releasing earnings Friday and there were no big negative surprises in either the 4th quarter performance or the outlook for 2023. The message was guardedly optimistic that a 2023 recession would be mild or even non-existent. In rates, the yield curve steepened mildly.
- The S&P 500 rose 2.67% for the week. The average daily move was 0.56%.
- The NASDQ advanced 4.82% for the week. The average daily move for the week was 0.95%.
- The 2-year Treasury yield declined 1 basis point, closing at 4.24% on Friday. High year-over-year 4.72%, low yield 0.97%.
- The 10-year Treasury yield fell 4 basis points for the week, closing at 3.51% on Friday. Year-over-year high yield 4.24%, low yield 1.73%.
- The VIX Index plummeted 13.2% for the week, closing at 18.35 Friday, a new year-over-year low. Year-over-year high 36.45 and low 18.35.
- The MOVE Index was nearly unchanged for the week, closing at 113.55 on Friday. Year-over-year high 160.72 and low 80.14.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads decline 5 basis point for the week closing at 70 basis points Friday. High spread Year-over-year high 111 and low of 55.
- High Yield corporate debt (as measured by Markit CDX) tightened 26 basis points, closing at 424 basis points on Friday. Year-over-year high 627, and low 313.
- US Dollar Index fell 1.61%, closing at 102.20 on Friday. Year-over-year high 114.11 and low 95.379.
- WTI Crude soared 8.3% using the February 2023 WTI Futures contract, closing at 79.86 Friday. Year-over-year high 123.70, and low 71.02.
- Gold, as measured by the February futures contract rose 2.7% for the week closing at 1,922 on Friday. High price for the front contract year-over-year 2,043 and low 1,644.
- Bitcoin rose 17.1% closing at 19,813 on Friday. High price year-over-year 47,967 and low 15,632.
The Week Ahead
We start the week with rates relatively unchanged and stocks down a bit from Friday’s closes. Bank earnings will continue to roll out with Goldman Sachs and Morgan Stanley releasing theirs this morning. Last week the risk markets saw the glass “half-full,” focusing on the positives listed in the recap above. However, there remains the steady drumbeat from analysts that earnings are going to stink in 2023 and equity valuations have not priced this in yet. Furthermore, in the case of highly leveraged companies, the effects of higher debt service costs, inflation, and a soft economy put many in the problem asset category. Earnings week continues to build up steam with P&G and Netflix reporting Thursday. As far as economic data, we have December PPI and Retail Sales tomorrow, as well as the Fed’s Beige Book. The rest of the week will see housing data and Federal Reserve bank’s releasing their regions economic indices.
Definitions:
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg 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.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.
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