Market Commentary: Week of March 6, 2023

Last Week

A slew of economic data releases last week pointed to continued economic strength as well as increasing wage pressures. These data releases told the markets that the Fed’s restrictive policy has yet to do the job to bring about a meaningful slowdown in inflation. Multiple Fed bank presidents and board governors took to the airwaves to drive this point home, uniformly saying that more work in the form of higher policy rates and a longer period of time at those higher, restrictive rates.

Just a few weeks ago, the rates markets went student body left, believing in the “2023 Fed Pivot." Last week, the markets went student body right, calling for policy rates as high as 6% for 2023 and potentially a 50-basis point hike at the March 22 FOMC meeting.

On Thursday, the 2-year note got as high as 4.94% and the 10-year note crossed the 4% Rubicon, reacting to a terrible unit labor cost (higher than expected) and productivity report (weaker than expected). Higher costs and lower productivity is a bad combination from an inflation perspective. However, stocks and credit spread products ignored the inflation gloom and doom for a week and focused on the “good” parts of the data, an economy that's doing stronger than expected.

Stocks put in a strong performance, along with investment grade and high-yield corporates.

• The S&P 500 advanced 1.91% for the week. The average daily move was 0.69%.
• The NASDAQ recovered rising 2.59% for the week. The average daily move for the week was 0.82%. 
• The 2-year Treasury yield increased 4 basis points, closing at 4.86% on Friday. Thursday the 2-year hit a new year-over-year high of 4.89%. High year-over-year 4.89%, low yield 1.55%
• The 10-year Treasury yield increased 1 basis point for the week, closing at 3.96% on Friday. Year-over-year high yield 4.24%, low yield 1.73%.
• The VIX Index plunged 17.2% for the week, closing at 18.49 Friday. Year-over-year high 36.45 and low 17.87.
• The MOVE Index closed nearly unchanged for the week, closing at 122.52 on Friday. Year-over-year high 160.72 and low 91.76.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 6 basis points for the week closing at 71 basis points Friday. High spread Year-over-year high of 111 and low of 64.
• High Yield corporate debt (as measured by Markit CDX) spreads declined 32 basis points, closing at 433 basis points on Friday. Year-over-year high 627, and low 355.
• US Dollar Index declined 0.66% for the week closing at 104.52 on Friday. Year-over-year high 114.11 and low 97.79.
• WTI Crude rose 4.4% for the week, using the April 2023 WTI Futures contract, closing at 79.69 Friday. Year-over-year high 123.70, and low 71.02.
• Gold, as measured by the April futures contract, rose 2.09% for the week closing at 1,855 on Friday. High price for the front contract year-over-year is 2,043 and the low is 1,623.
• Bitcoin fell 3.72% for the week closing at 22,243 on Friday. High price year-over-year 47,967 and low 15,632.

The Week Ahead

We come in this morning with stocks unchanged while Treasury yields are up a few basis points, led by the long end of the curve. Big events this week are Fed Chairman Powell testifying in front of both Senate (Tuesday) and House (Wednesday) banking committees. I would expect that 99% of the discussions will zero in on inflation.

On Wednesday, we get the JOLT report, a Fed favorite, and then on Friday, we have the all-important February Non-Farm Payroll report. Last month was a stunner to the upside. Street consensus is a 220,000 add to payrolls and a significant revision to last month’s blistering report. Rest up today because the rest of the week should be crazy!

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.

Investing involves certain risks, including possible loss of principal. You should understand and carefully consider a strategy’s objectives, risks, fees, expenses and other information before investing. The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice. Such views do not take into account the individual financial circumstances or objectives of any investor that receives them. All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.

© 2021 SWBC. All rights reserved. Securities offered through SWBC Investment Services, LLC, a registered broker/dealer. Member FINRA & SIPC. Advisory services offered through SWBC Investment Company, a Registered Investment Advisor, registered as such with the US Securities & Exchange Commission. SWBC Investment Services, LLC is under separate ownership from any other named entity. SWBC Investment Services, LLC a division of SWBC, is a nationwide partnership of advisor.