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    Capital Markets | 5 min read

    Market Commentary: Week of June 21, 2022

    Last Week

    In describing last week, it would be easier to make a list of financial assets that did not crash than those that did. It felt like the entire financial asset world, once pumped up by uber-easy monetary policy, fiscal spending, and voracious risk appetite began seriously paying the butchers-bill.

    After the previous Friday’s CPI shocker (worse inflation than the already terrible expected numbers), the rates markets re-priced in a 75-basis point move for last Wednesday’s FOMC as well as another outsized hike for the next FOMC meeting at the end of July. The Treasury market took a sickening assent toward 3.5% 2s through 30s and corporate credit spreads exploded as investors got a lesson in spread duration as well as plain old rate duration.

    On Wednesday, the FOMC did indeed go 75 basis points and the statement followed by Chairman Powell’s opening remarks at his press conference showed, once again, that the Fed knows they botched the “inflation-thing," and they will now do whatever it takes to kill it. For some silly reason, stocks and rates repeated their mistake after the May FOMC meeting (where very similar statements were made by the Committee and the Chairman) by rallying.

    Then, on Thursday, all hell broke loose. The only reason 2-year notes retreated 20 or so basis points is that we got a full-blown flight to quality panic in risk markets. The Ponzi, also known as Decentralized Finance (DeFi), finally collapsed as crypto coins melted down taking many prominent crypto “enthusiasts” down with it. I guess we should congratulate the asset class as it proved to be big enough to break through and pummel other risk markets that were just minding their own business.

    • The S&P 500 plunged 5.8 % for the week. The average daily move was 1.83%.
    • The NASDAQ dropped 4.8% for the week. The average daily move for the week was an astounding 2.57%.
    • The 2-year Treasury yield surged 11 basis points closing at 3.18% on Friday. On Tuesday, the note closed at a yield of 3.43% a new year-over-year high. High year-over-year 3.43%, low yield .10%.
    • The 10-year Treasury yield increased 7 basis points for the week, closing at 3.23% on Friday. On Tuesday, the note settled at 3.47%, a new year-over-year high. Year-over-year high yield 3.47%, low yield .91%.
    • The VIX Index rose 12% for the week, closing at 31.13 Friday. Year-over-year high 36.45 and low 15.07.
    • The MOVE Index surged 17% for the week, closing at 133.75 on Friday. The Index set a new year-over-year high on Tuesday closing at 144.09Year-over-year high of 140.03 and a low of 42.53.
    • 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 8 basis points for the week closing at 100 basis points Friday. On Thursday, the index set a new year-over-year high of 102. High spread Year-over-year high 102 and low of 46.56.
    • High Yield corporate debt (as measured by Markit CDX) widened by 44 basis points, closing at 576 basis points on Friday. On Thursday, a new year-over-year high was set at 588. Year-over-year high 588, and low 269.
    • US Dollar Index rose 0.5% for the week closing at 104.70 on Friday. On Tuesday, the index set a new year-over-year high of 105.52Year-over-year high of 104.85 and a low of 89.44.
    • WTI Crude dropped 8.6% for the week using the August WTI Futures contract, closing at 107.99 Friday. Year-over-year 123.70, and low 47.62.
    • Gold, as measured by the August 2022 futures contract fell 1.9%% for the week closing at 1,841 on Friday. High price for the front contract year-over-year is 2,043 and low is 1,678.
    • Bitcoin crashed, falling 29%, closing at 20,630 Friday, a new year-over-year low. High price year-over-year 67,734 and low 20,630.

    The Week Ahead

    We come in this morning after the long weekend with equity futures up and Treasury yields up as well. There is an awful lot of carnage out there and liquidity is poor. The tug of war over which is more likely, recession or persistent inflation that has yet to peak continues. How about both!

    Over the weekend, financial market commenters spoke of the hedge fund community being de-grossed which I guess means, de-risked. Do not count on it. I have my eye on the USD-Japanese Yen. The Yen has been getting killed as monetary policy between Japan and the rest of the G7 continues to diverge. Many bets were made late last week that the Bank of Japan was going to get on a similar page with the rest of the world at their Thursday meeting. It didn’t happen and the Yen collapsed, falling nearly 3% against the USD (Thursday to this morning). We could start seeing people getting carried out on that event this week, just a hunch.

    We get existing home sales a bit later this morning. Mortgage rates have nearly doubled in the last couple of months and the red-hot housing market shows signs of cooling.

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    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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    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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