Last Week It was an ugly week for just about every financial asset as Treasury rates soared, spread product (particularly munis) was clobbered, while stocks took a dive. We had a quadruple dose of cen...
Last week’s market activity harkened back to the Quantitative Easing days of yore as we had an “everything rally”. Stocks and corporate spreads rallied on the hope that recession may not occur while bonds rallied as June CPI pointed toward significant improvement in the war on inflation. Additional support for the economic outlook came from the “Too Big to Fail” banks earnings releases. In addition to making a killing on net interest margins, the big boys announced solid consumer lending growth, as credit card usage has spiked as well as healthy home equity loan growth. The markets seem to be pricing in the Fed’s ability to stick the difficult dismount of slaying inflation while keeping the economy from recession. Given the Fed’s recent pass performance of getting nearly everything wrong (inflation, insider trading and bank regulation) do you think they can do the near impossible? I am going to say no.
- The S&P 500 rallied 2.41% for the week. The average daily move was 0.52%.
- The NASDQ soared 3.33% for the week. The average daily move for the week was 0.73%.
- The 2-year Treasury yield fell 18 basis points, closing at 4.77% on Friday. High year-over-year 5.07%, low yield 2.87%.
- The 10-year Treasury yield dropped 24 basis points for the week, closing at 3.83% on Friday. Year-over-year high yield 4.24%, low yield 2.58%.
- The VIX Index fell 10.04% for the week, closing at 13.34 on Friday. Year-over-year high 34.45 and low 12.91.
- The MOVE Index crashed 13.75% for the week, closing at 112.48 on Friday. Year-over-year high 198.71 and low 97.33.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads declined 3 basis points, closing at 67 basis points on Friday. On Wednesday, spreads hit a new year-over-year low of 64 basis points. High spread Year-over-year high 111 and low of 64.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads tightened 23 basis points, closing at 430 basis points on Friday. Year-over-year high 627, and low 408.
- US Dollar Index plunged 2.3% closing at 99.91 on Friday. On Thursday the index set a new year-over-year low of 99.77. Year-over-year high 114.11 and low 99.77.
- WTI Crude increased 2.1% for the week, using the September WTI Futures contract, closing at 75.32 on Friday. Year-over-year high 104.22, and low 66.74.
- Gold, as measured by the August futures contract, rose 1.6% for the week, closing at 1,964 on Friday. High price for the front contract year-over-year 2,056 and low 1,624.
- Bitcoin declined 0.21% for the week closing at 30,206 on Friday. High price year-over-year 31,386 and low 15,632.
The Week Ahead
We come in this morning with stocks off small and Treasury yields down a few basis points. Last night China reported very weak economic growth, potentially dashing the hopes that a resurgent China could help power the global economy past recession. The year-over-year numbers look high, but that is because last year saw the Chinese economy essentially locked down. The Fed is in its quiet period now ahead of the July 26th FOMC meeting. Looking at Fed Fund futures and OIS index swaps, the markets have reduced the odds of a late 2023 hike (July hike firmly baked in still) to about 30%. Additionally, the amount of 2024 rate cuts are now estimated to be 4 to 5. Sort of flies in the face of a soft-landing economic scenario, no?
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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