Market Commentary: Week of July 5, 2022

Last Week

Risk assets took it on the chin last week as the markets focused on the possibility of a global recession. Corporate bond and loan spreads pushed out significantly, getting close to the wides of the year. Treasury yields fell sharply in accordance with recession fears.

The real issue is the strong possibility of central banks raising rates and tightening credit into a significant slow down or recession. If the Fed is serious about slaying inflation, then the odds of them coming to the rescue as they have done over and over the last three decades are pretty low.

The “good news” is the inflation we are currently experiencing is probably not as deep-rooted as the inflationary periods of the 1960s and 1970s. The “bad news” is that the Fed knows this, and they will most probably push on the side of over-tightening to make sure inflation does not get deeply rooted. Not a good environment for risk assets now and probably for a good chunk of 2023 in my opinion.

• The S&P 500 declined 2.2% % for the week. The average daily move was .86%.
• The NASDAQ fell 4.1% for the week. The average daily move for the week was 1.2%.
• The 2-year Treasury yield plunged 23 basis points closing at 2.84% on Friday. High year-over-year 3.43%, low yield .10%.
• The 10-year Treasury yield fell 25 basis points for the week, closing at 2.88% on Friday. Year-over-year high yield 3.47%, low yield .91%.
• The VIX Index fell 2% for the week, closing at 27.23 Friday. Year-over-year high 36.45 and low 15.07.
• The MOVE Index surged 14%% for the week, closing at 144.17 on Friday, a new year-over-year high. Year-over-year high 144.17 and low 42.53.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 7 basis points for the week closing at 101 basis points Friday. High spread Year-over-year high 102 and low of 46.56.
• High Yield corporate debt (as measured by Markit CDX) widened 49 basis points, closing at 577 basis points on Friday. Year-over-year high 588, and low 269.
• US Dollar Index rose 0.9% for the week closing at 105.14 on Friday, a new year-over-year high. Year-over-year high 105.14 and low 91.86
• WTI Crude increased .8% using the August WTI Futures contract, closing at 108.43 Friday. Year-over-year 123.70, and low 47.62.
• Gold, as measured by the August 2022 futures contract fell 1.6% for the week closing at 1,830 on Friday. High price for the front contract year-over-year 2,043 and low 1,729.
• Bitcoin dropped 8.4%, closing at 19,407 Friday, a new year-over-year low. High price year-over-year 67,734 and low 17,785.

The Week Ahead

We come in after the long weekend with Treasury yields down and stocks, commodities, and corporate credit giving back last Friday’s thinly-traded gains. The U.S. Dollar is surging as commodities, in general, are getting pasted.

The August 2022 WTI Crude contract is down nearly 10% on the day and copper has hit a 17-year low. The copper story is pretty incredible as the metal hit its all-time high just a few months earlier in the year.

It is a big week for data with the highlights being the June FOMC minutes on Wednesday and the non-farm payroll figures for June on Friday.

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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