Last Week It was an ugly week for just about every financial asset as Treasury rates soared, spread product (particularly munis) was clobbered, while stocks took a dive. We had a quadruple dose of cen...
Capital Markets
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4 min read
Last Week
Artificial Intelligence (AI) mania hit the Street last week driving the tech-heavy NASDAQ up over 2.5%. The rally was led by NVIDIA, the leading maker of chips needed for artificial intelligence products, also known as SKYNET!
NVIDIA is up a cool 166% year to date and every time its rock star CEO speaks, the stock seems to rise another 5-10%. While I know NVIDIA is not “Sockpuppet.Com,” did the markets just discover the main players in the last couple of weeks as the stock is up about 35% since May 15? My cautionary advice is to beware of CEOs achieving cult status in a few weeks as we have seen this movie before.
Elsewhere, on the inflation battle-front, April PCE figures all came in stronger than expected, helping Treasury yields to soar as a 25-basis point hike was priced into the June FOMC meeting (June 13-14).
Speaking of the Treasury, debt-ceiling angst reached a boiling point as we headed into the weekend without a deal. Treasury Bills gyrated with the June 1 bill getting as high as 7%.
- The S&P 500 rose slightly by 0.33% for the week. The average daily move was 0.81%.
- The NASDAQ advanced 2.52% for the week. The average daily move for the week was 1.25%.
- The 2-year Treasury yield surged 29 basis points, closing at 4.56% on Friday. High year-over-year 5.07%, low yield 2.48%.
- The 10-year Treasury yield rose 12 basis points for the week, closing at 3.80% on Friday. Year-over-year high yield 4.24%, low yield 2.58%.
- The VIX Index increased 6.78% for the week, closing at 17.95 on Friday. Year-over-year high 34.45 and low 15.78.
- The MOVE Index surged 14% for the week, closing at 127.51 on Friday. Year-over-year high 198.71 and low 97.33.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 4 basis points for the week closing at 75 basis points on Friday. High spread Year-over-year high of 111 and low of 67.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads tightened 18 basis points, closing at 475 basis points on Friday. Year-over-year high 627, and low 408.
- US Dollar Index rose 0.98% to 104.21 on Friday. Year-over-year high 114.11 and low 101.01.
- WTI Crude increased 1.35% for the week, using the July WTI Futures contract, closing at 72.67 on Friday. Year-over-year high 122.11, and low 66.74.
- Gold, as measured by the August futures contract, declined 1.86% for the week closing at 1,954 on Friday. The high price for the front contract year-over-year is 2,056 and the low is 1,623.
- Bitcoin eased 0.30% for the week closing at 26,759 on Friday. High price year-over-year 46,312 and low 15,632.
The Week Ahead
We come in this Monday with Treasury rates down sharply as a deal between President Biden and Speaker McCarthy was struck over the weekend. As with any true compromise, many on both sides are unhappy with the deal, which still needs to be taken out of committee and brought for a vote.
I am going to go out on a limb here and say that at least twice this week there will be a panic as members of both parties threaten to tank the deal. Will it eventually pass? Hopefully, by week's end, it will but never underestimate our leaders in DC's ability to fail. I’d be very wary with risk assets this week.
We get a lot of data in this holiday-shortened week with the JOLT report tomorrow and the May Employment report 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 the 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 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 & Telecommunications. 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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