Market Commentary: Week of May 15, 2023

Last Week

Looking at price action week over week in equities, bonds, and commodities would appear to have had a quiet week. However, confusion and uneasiness continued to drive day over day movement. On the economic front, April Core CPI eased slightly as year-over-year went from 5.6% to 5.5%. A glimmer of hope came from Core CPI excluding housing as that reading (the Fed’s preferred Core reading) only increased 0.1% month over month. That is the slowest increase since July 2022. In response, the front end of the yield curve rallied some. In equities and other credit products, regional banks led the way down as Pac West reported that customer deposits continue to leave the bank. Every retail dollar of funding that leaves is replaced with either wholesale money (brokered CDs) or the Fed’s lending facility, both of which are over 5%. The net interest margin story for many banks continues to be bleak, especially heading into perhaps a major commercial real estate credit event. Additionally, multiple news stories came out over the weekend highlighting borrower’s inability to move as they are anchored with the “Golden Handcuffs” of their 3% 30-year mortgage. This is also a major headwind for the banks. Finally, there’s the Treasury debt-ceiling crisis. While the T-bill curve has become very “kinked,” so far risk markets are assuming there will be a resolution. You know what they say about assuming, especially when it comes to our friends in D.C.

• The S&P 500 fell 0.29% for the week. The average daily move was 0.26%.
• The NASDQ rose 0.41% for the week. The average daily move for the week was 0.48%. 
• The 2-year Treasury yield increased 7 basis points, closing at 3.99% on Friday. High year-over-year 5.07%, low yield 2.48%.
• The 10-year Treasury yield rose 3 basis point for the week, closing at 3.47% on Friday. Year-over-year high yield 4.24%, low yield 2.58%.
• The VIX Index declined 0.93% for the week, closing at 17.03 on Friday. Year-over-year high 34.45 and low 15.78.
• The MOVE Index fell 6.93% for the week, closing at 120.52 on Friday. Year-over-year high 198.71 and low 97.33.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads were unchanged for the week closing at 81 basis points on Friday. High spread Year-over-year high 111 and low of 67.
• 5-year High Yield corporate debt (as measured by Markit CDX) spreads increased 4 basis points, closing at 497 basis points on Friday. Year-over-year high 627, and low 408.
• US Dollar Index rose 1.45% to 101.21 on Friday. Year-over-year high 114.11 and low 101.01.
• WTI Crude fell 1.8 % for the week, using the June WTI Futures contract, closing at 70.04 on Friday. Year-over-year high 122.11, and low 66.74.  
• Gold, as measured by the June futures contract, declined 0.2% for the week closing at 2,020 on Friday. On Thursday, the commodity hit a new year-over-year high of 2,056. High price for the front contract year-over-year 2,056 and low 1,623.
• Bitcoin dropped 10.42% for the week closing at 26,448 on Friday. High price year-over-year 46,312 and low 15,632.

The Week Ahead  

We come in this Monday with Treasury rates up and with the front-end leading the way while equities are up about 0.25%. There is some optimism that debt-ceiling talks will continue and ultimately bear fruit. It is a relatively light week for data, with April Retail Sales the highlight tomorrow. I expect the week to be dominated by debt ceiling talks as the deadline moves closer and closer. On the international front, the elections in Turkey are now going to a runoff which in turn may cause some angst. Somehow, I can’t see Erdogan allowing himself to lose, just a hunch.

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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