Capital Markets | 5 min read

    Market Commentary: Week of June 13, 2022

    Last Week

    Last week marked the market’s final confirmation that corrosive inflation is out of the barn with the Fed hopelessly behind trying to play catch-up. The choice for the Fed now is to either stay the course with relatively measured policy tightening and accept the potential for continued growth in inflation or attack inflation with more aggressive tightening and send the economy into a deep recession.

    Americans are feeling the unfamiliar squeeze of corrosive inflation as the price of everything they cannot do without continues to skyrocket. With every day, it appears we get closer to a bout of stagflation. I believe Friday’s shocking CPI data will put the Fed on a more aggressive tightening path. The front end of the Treasury curve sure thinks so as the two-year surged 41 basis points and 2s-10s flattened 17 basis points.

    Stocks and risk assets are getting hit from all directions. Value stocks are getting creamed by tighter corporate margins and reduced profit expectations while growth stocks have been pounded by deteriorating margins, higher borrowing costs, and the speeding up of cash burn. Corporate bond spreads blew out and liquidity dried up. The only winners were energy commodities, which moved higher despite the sharp increase in the U.S. Dollar.

    • The S&P 500 plunged 5.03 % for the week. The average daily move was 1.52%.
    • The NASDAQ dropped 5.60% for the week. The average daily move for the week was 1.67%.
    • The 2-year Treasury yield, surged 41 basis points closing at 3.07%, a new year-over-year high. High year-over-year 3.07%, low yield .10%.
    • The 10-year Treasury yield increased 22 basis points for the week, closing at 3.16%, a new year-over-year high. Year-over-year high yield 3.16%, low yield .91%.
    • The VIX Index rose 12% for the week, closing at 27.75 Friday. Year-over-year high 36.45 and low 15.07.
    • The MOVE Index surged 17% for the week, closing at 114.23 on Friday. Year-over-year high 140.03 and low 42.53.
    • 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 10 basis points for the week closing at 92 basis points Friday, a new year-over-year high. High spread Year-over-year high 92 and low of 46.56.
    • High Yield corporate debt (as measured by Markit CDX) widened by 59 basis points, closing at 532 basis points on Friday, a new year-over-year high. Year-over-year high 532, and low 269.
    • US Dollar Index rose 2% for the week closing at 104.15 on Friday. Year-over-year high 104.85 and low 89.44.
    • WTI Crude increased 1.5% for the week using the July WTI Futures contract, closing at 120.67 Friday. Year-over-year 123.70, and low 47.62.
    • Gold, as measured by the August 2022 futures contact rose1.4% for the week closing at 1,876 on Friday. High price for the front contract year-over-year 2,043 and low 1,678.
    • Bitcoin fell 1.6%, closing at 29,177 Friday. High price year-over-year 67,734 and low 28,402.

    The Week Ahead

    We come in this morning with the markets in full-scale panic mode. Equities are down approximately 2% after last Friday’s wipeout while Treasury yields are surging higher. Friday’s one-two punch of dreadful inflation figures and dismal consumer sentiment (U Michigan) landed hard. Looking at Fed Funds futures and OIS implieds, the likelihood of a 75-basis point hike as early as this week’s FOMC has crept back in. The Fed’s FOMC meets this week starting Tuesday and wrapping up Wednesday with the statement release and Chairman presser. The only good news is this mess ends early on Friday for the long Juneteenth holiday weekend.

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    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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    John Tuohy

    John Tuohy is CEO of SWBC Investment Services, LLC, a Broker/Dealer and SWBC Investment Company, an SEC Registered Investment Advisor (RIA). In his role, John is responsible for identifying, developing, and executing the division's strategic plan and all business development, sales, and marketing activities.

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