Volatility was on full display this week as rates tested new cycle highs after the Trump election victory. On Thursday, the FOMC rate decision was announced calling for a 25-basis point cut followed b...
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Last Week
Last week was the case of Powell strikes back. Once again, many market participants seemed to hear what they wanted to hear from the prior week’s FOMC meeting and priced in, yet another “Fed Pivot”. On Thursday, Chairman Powell spoke at the IMF conference and—in no uncertain terms—disabused the notion of quick easing of monetary policy. The Fed isn’t easing anytime soon as they are still very uneasy about inflation, and they very well could raise more if necessary. The implied (Fed Fund futures and OIS Swaps) four cuts in 2024 was shaved to three, taking out the prior weeks “Fed Pivot” inanity. Also, on Thursday the “What if they gave an auction and nobody showed up?” play was on. It wasn’t quite that bad as no one showing up, but it was pretty terrible. Thursday’s Long-Bond auction tailed over 5 basis points and carnage ensued. After the market closed Friday, Moody’s changed their outlook on U.S. Government debt from “Stable” to “Negative”. If the US Dollar wasn’t the world’s reserve currency it would be a lot worse. Good times.
- The S&P 500 advanced 1.31% for the week. The average daily move was 0.59%.
- The NASDQ gained 2.23% for the week. The average daily move for the week was 0.85%.
- The 2-year Treasury yield sprung 22 basis points higher, closing at 5.06% on Friday. High year-over-year 5.22%, low yield 3.77%.
- The 10-year Treasury yield increased 8 basis points for the week, closing at 4.65% on Friday. Year-over-year high yield 4.99%, low yield 3.31%.
- The VIX Index declined 4.96%, closing at 14.17 on Friday. Year-over-year high 29.82 and low 12.82.
- The MOVE Index declined 1.64% for the week, closing at 116.79 on Friday. Year-over-year high 198.71 and low 96.61.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 2 basis points for the week, closing at 68 basis points on Friday. High spread Year-over-year high 111 and low of 62.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads gapped in 28 basis points closing at 436 basis points on Friday. Year-over-year high 534, and low 408.
- US Dollar Index weakened 0.80% for the week, closing at 105.86 on Friday. Year-over-year high 114.11 and low 99.77.
- WTI Crude dropped 4.15% for the week, using the December WTI Futures contract, closing at 77.17 on Friday. Year-over-year high 93.68, and low 66.74.
- Gold, as measured by the December futures contract, declined 3.05% for the week, closing 1,999 on Friday. High price for the front contract year-over-year 2,056 and low 1,740.
- Bitcoin advanced 7.72% for the week closing at 37,293 on Friday, a new year-over-year high. High price year-over-year 37,293 and low 15,632.
The Week Ahead
We start the week with rates markets selling off a bit and stocks down small. The economic calendar’s big event is October CPI on Tuesday. The expected month-over-month increase for Core CPI is 0.3%. The tone in the rates markets feels pretty bad and we could be in for a long slog back to 5% on 10s as the month rolls on. Credit spreads in such asset classes as High Yield corporates have screamed tighter the last few weeks and stocks have been resilient. However, if I am right about rates and geopolitical risks taking a turn even worse, risk assets could find quickly find themselves in no-man’s land.
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.
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