Market Commentary: Week of May 6, 2024

Last week, the market assumed a different perspective regarding the inflation picture and the likelihood of Fed rate action than in previous weeks. As usual, the market had settled into the middle of its recent range ahead of Wednesday’s Federal Open Market Committee (FOMC) announcement (which left the target rate unchanged) and Chair Powell’s press conference. As recently as two weeks ago, expectations for Fed rate cuts were pushed further into late 2024. Some market participants had floated the possibility of a rate hike at some point this year. Following the presser, Powell assumed a dovish tone and notably took rate hikes off the table, so the market sentiment shifted considerably. Rates rallied initially, but the all-important Nonfarm Payroll release was still pending release on Friday morning. The constructive, but lower than expected, employment data pushed the market into buy mode and reintroduced rate cut talk.

10-year yields rallied sharply on Friday, rejecting the recent highs, then tested and closed very near the low of the recent trading range (red rectangle). Though still within the upward-sloping trend channel, the market's tone has shifted significantly. Both the data and the Fed’s openly stated perspective suggest that inflation may be more contained than previously thought. A reasonable investor could arguably assume that the rate high is in for the year. Further confirmation may be warranted, but that may come at the expense of preceding a few more basis points of yield.

SWBC clients were cautious earlier in the week but became more active than a typical Friday following the more robust market environment after Nonfarm Payrolls. The desk had an active day in both buys and sales as the opportunity to lock in relatively attractive yields with less concern about rates still pushed higher and enticed buyers to engage. The municipal calendar is significant this week, with over $10 billion scheduled to enter the market. Looking further ahead, conflicting forces between a better tone to the market and heavier supply may counterbalance each other and cause underperformance in the municipal space as we head into the summer.

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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