Market Commentary: Week of January 23, 2023

Last Week

Last week was a bit of a schizophrenic one for rates and equities as narratives crisscrossed one another. The beginning of the week was dominated by talk of recession and corporate margin compression, which in turn would cause the Fed to pause in 2023 and reverse course. Hence a big rally in rates and a selloff in stocks and risk assets.

Then—magically—on Thursday, aided by Fed speakers saying for the zillionth time that they are taking the funds rate up to or past 5% and keeping it there for a good while, rates sold off, while stocks recovered as the promise of a possible soft landing for the global economy was bandied about.

If you are wondering how we can get a soft landing and a dovish Fed at the same time, you are not alone.

• The S&P 500 declined 0.65% for the week. The average daily move was 1.10%.
• The NASDAQ advanced 0.55% for the week. The average daily move for the week was 1.25%.
• The 2-year Treasury yield declined 7 basis points, closing at 4.17% on Friday. High year-over-year 4.72%, low yield 0.97%.
• The 10-year Treasury yield fell 3 basis points for the week, closing at 3.48% on Friday. Year-over-year high yield 4.24%, low yield 1.73%.
• The VIX Index rose 8.2% for the week, closing at 19.85 Friday. Year-over-year high 36.45 and low 18.35.
• The MOVE Index increased 1%, closing at 114.76 on Friday. Year-over-year high 160.72 and low 81.76.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 4 basis points for the week closing at 74 basis points Friday. High spread Year-over-year high of 111 and low of 58.
• High Yield corporate debt (as measured by Markit CDX) widened 22 basis points, closing at 446 basis points on Friday. Year-over-year high 627, and low 325.
• US Dollar Index was nearly unchanged for the week closing at 102.01 on Friday. Year-over-year high 114.11 and low 95.379.
• WTI Crude rose 1.8% using the March 2023 WTI Futures contract, closing at 81.64 Friday. Year-over-year high 123.70, and low 71.02.
• Gold, as measured by the February futures contract rose 0.3% for the week closing at 1,929 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,644.
• Bitcoin rose 11.7% closing at 22,318 on Friday. High price year-over-year 47,967 and low 15,632.

The Week Ahead

We start the week with rates up, led by the front end of the curve. Stocks are up a fair amount globally. The Fed is in a quiet period this week which could be good for all assets because it seems that unless Fed Presidents and Governors are there to remind everyone that they really mean what they have been saying about inflation fighting since last August, visions of pauses and rate cuts dance in investors heads.

On the data front, the week ahead gives us a lot to look at in front of the Fed’s FOMC meeting next week (The Bank of England and European Central Bank also meet next week). We get a first look at Q4 GDP Thursday, along with Durable Goods for December.

On Friday, we get PCE data for December. Both the Core and the Headline numbers are expected to decline a bit from November readings. As this is the final look at price data before the FOMC, this could be a big mover. Meanwhile, in equities, Q4 earnings data kicks into high gear.

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, 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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