Market Commentary: Week of January 30, 2023

Last Week

The January rally in equities continued last week with nearly all major indices up sharply, led by the NASDAQ 100, up over 4% for the week and 11% for the month. Despite pretty gloomy 4^th quarter earnings and 2023 outlooks, Big Tech is getting a very strong FOMO bid. Too soon? I think so.

The economic data released during the week, led by Q4 GDP and December PCE, showed an economy beginning to cool down. Perhaps some of the stellar equity performance last week was a combination of this constructive data and the lack of Fed-Speak (pre-FOMC blackout) to lecture the markets that, while these numbers show things going in the right direction for inflation fighting, victory is still far off. Other risk assets such as corporate debt and emerging market debt and equity have also bounced back significantly this month.

• The S&P 500 rose 2.47% for the week. The average daily move was 0.53%.
• The NASDAQ surged 4.33% for the week. The average daily move for the week was 1.03%.
• The 2-year Treasury yield rose 3 basis points, closing at 4.20% on Friday. High year-over-year 4.72%, low yield 0.97%.
• The 10-year Treasury yield increased 3 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 fell 6.75% for the week, closing at 18.51 Friday. Year-over-year high 36.45 and low 18.35.
• The MOVE Index dropped 12.25%, closing at 100.7 on Friday. Year-over-year high 160.72 and low 81.76.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 3 basis points for the week closing at 71 basis points Friday. High spread Year-over-year high 111 and low of 58.
• High Yield corporate debt (as measured by Markit CDX) decreased by 14 basis points, closing at 432 basis points on Friday. Year-over-year high 627, and low 325.
• US Dollar Index was nearly unchanged for the week closing at 101.93 on Friday. Year-over-year high 114.11 and low 95.379.
• WTI Crude declined 2.4% using the March 2023 WTI Futures contract, closing at 79.68 Friday. Year-over-year high 123.70, and low 71.02.
• Gold, as measured by the February futures was unchanged for the week closing at 1,929 on Friday. High price for the front contract year-over-year is 2,043 and the low is 1,644.
• Bitcoin rose 3.47% closing at 23,092 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, and stocks off a decent amount globally. The Super Bowl may not be for two weeks but this week is the financial markets equivalent!

On Wednesday, we have the Fed’s FOMC meeting statement and Chairman Powell's press conference. While always exciting, this meeting may be a bit more tranquil, especially because there’s no release of the Fed’s “Dot Plot." I expect more of the same from the Chairman, noting that some of the latest signs on inflation have started to go in the right direction but we still have much more work to do. A good chunk of the market has been ignoring this message over the last few months, so unless Powell comes out with a shocker, I don’t see this meeting as a huge market event.

On Thursday, we have the Bank of England and the European Central Bank meetings, with the expectations that the ECB will be about as hawkish as our Fed was in the second half of last year.

The big event for the week as far as markets go will be the January BLS employment report. Street estimates look for a bit of weakening and markets seem to be heading in that direction. A stronger-than-expected number will be crushing if it occurs.

In equities, we have Apple, Amazon, Google, Exxon and Facebook, and a host of other huge names reporting as the week rolls on. It should be very interesting!

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 & 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.

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