Market Commentary: Week of October 30, 2023

Last Week

Another week, another stomach churner. Equities had their second bad week in a row as the tone from 3^rd quarter earnings calls has been one of caution and weaker forward projections. Wall Street analysts used the term “earnings recession”, which was worn out by weeks end. After months of ignoring the firestorm in rates markets, equities are now waking up to a realization that while corporate earnings and the economy will begin to show real signs a weakening, the economy is still running strong enough to keep interest rates higher for longer. Perhaps we should call this the ”Anti-Goldilocks” market, both too hot and too cold! Meanwhile interest rates gyrated all week with multiple flights to quality, driven by the events in Israel and Gaza. Rates ended up down about 8 basis points across the curve for the week. The tone to the rates market was one of confusion and fear. The release of 3^rd quarter GDP showed the economy growing at an astounding 4.9% with the GDP Deflator up more than expected month over month. Perhaps the only thing keeping rates from blasting off was the heightening geopolitical fears.  

• The S&P 500 dropped 2.53% for the week. The average daily move was 0.80%.
• The NASDQ fell 2.63% for the week. The average daily move for the week was 1.15%. 
• The 2-year Treasury yield declined 8 basis points, closing at 5.00% on Friday. High year-over-year 5.22%, low yield 3.77%.
• The 10-year Treasury yield fell 8 basis points for the week, closing at 4.84% on Friday. Year-over-year high yield 4.99%, low yield 3.31%.
• The VIX Index edged lower by 0.45%, closing at 21.27 on Friday. Year-over-year high 29.82 and low 12.82.
• The MOVE Index declined 4.64% for the week, closing at 129.16 on Friday. Year-over-year high 198.71 and low 96.61.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 1 basis point for the week, closing at 82 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 increased 1 basis point, closing at 527 basis points on Friday. Year-over-year high 543, and low 408.
• US Dollar Index advanced 0.37% for the week, closing at 106. on Friday. Year-over-year high 114.11 and low 99.77.
• WTI Crude dropped 2.88% for the week, using the December WTI Futures contract, closing at 85.54 on Friday. Year-over-year high 93.68, and low 66.74.  
• Gold, as measured by the December futures contract, rose 0.25% for the week, closing at 1,999 on Friday. High price for the front contract year-over-year 2,056 and low 1,631.
• Bitcoin sprung 14.31% higher for the week closing at 33,837 on Friday. On Wednesday Bitcoin hit a new year-over-year high of 34,681. High price year-over-year 34,681 and low 15,632.

The Week Ahead  

This week may be the most action-packed week we have seen in perhaps forever. Tonight, the Bank of Japan (BOJ) meets. The BOJ is caught between a rock and a hard place. Some expect the BOJ to signal the beginning of the end of Yield Curve Control (“YCC”). Currently the yield cap on the 10-year JGB is 100 basis points. The yield on the bond has been creeping up toward the cap as well, closing at 89 basis points last night. Against this potential policy change is the weakening Yen, currently bumping right up against 150 to the US Dollar. A concern is if the BOJ doesn’t really lean into a tightening of monetary policy, perhaps ending negative rate policy (BOJ policy rate now negative 10 basis points) the Yen blasts through 150, which in turn will put greater inflationary pressure on the economy. If the BOJ is perceived as too aggressive, all heck may break loose! On Wednesday we get the Fed’s FOMC meeting policy announcement followed by Chairman Powell’s press conference. Currently the possibility of a rate hike is seen as zero (looking at Fed Fund Futures and OIS Swaps). However, the forecast for December and 2024 will be crucial. Also important, on Wednesday we get the 4^th quarter Treasury refunding/issuance announcement. A mountain of new supply is expected. Meanwhile, all week we get a slew of Tier One data, culminating in the October Employment Report on Friday. Good luck!

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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