Market Commentary: Week of September 25, 2023

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 central bank policy meetings (Fed, Bank of England, European Central Bank and Bank of Japan) during the week. The overriding message, despite different economic conditions for each policy making body, was inflation is still a menace and the fight is far from over, except for the Bank of Japan who continues to play with fire. On Wednesday, the Fed signaled rather emphatically that they will be higher for longer as the FOMC “dot plot” signaled one more hike in 2023 and only two cuts in 2024. At the last dot plot release (June FOMC) four cuts were the consensus. Higher for longer is tough medicine. When we combine this with building budget deficits and growing supply in government borrowings without the giant non-economic buyer (the Fed), we get a whole lot of pain at the long end of the curve as the 10-year note bounced up against 4.50%.

• The S&P 500 dropped 2.92% for the week. The average daily move was 0.62%.
• The NASDQ plunged 3.62% for the week. The average daily move for the week was .68%.
• The 2-year Treasury yield rose 7 basis points, closing at 5.11% on Friday. On Wednesday the note set a new year-over-year high of 5.18%. High year-over-year 5.18%, low yield 3.77%.
• The 10-year Treasury yield increased 11 basis points for the week, closing at 4.44% on Friday. On Thursday the note hit a new year-over-year high of 4.50%. Year-over-year high yield 4.45%, low yield 3.31%.
• The VIX Index soared higher by 25% for the week, closing at 17.20 on Friday. Year-over-year high 34.45 and low 12.82.
• The MOVE Index increased 4.66% for the week, closing at 101.11 on Friday. Year-over-year high 198.71 and low 96.61.
• 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 10 basis points, closing at 73 basis points on Friday. High spread Year-over-year high 111 and low of 62.29.
• 5-year High Yield corporate debt (as measured by Markit CDX) spreads increased 21 basis points, closing at 445 basis points on Friday. Year-over-year high 627, and low 408.
• US Dollar Index advanced .25% closing at 105.58 on Friday. Year-over-year high 114.11 and low 99.77.
• WTI Crude rose was nearly unchanged for the week, using the November WTI Futures contract, closing at 90.03 on Friday. Year-over-year high 90.58, and low 66.74   
• Gold, as measured by the December futures contract, was unchanged for the week, closing at 1,946 on Friday. High price for the front contract year-over-year 2,056 and low 1,624.
• Bitcoin rose .45% for the week closing at 26,538 on Friday. High price year-over-year 31,386 and low 15,632.

The Week Ahead  

The carnage in rates continues as we come into a new week while the 10-year Treasury note is taking another run at breaking 4.50%. European equities are down over 1% while U.S. futures are off about a quarter percent. Economic data this week includes Philly Fed Tuesday, and August PCE data on Friday. Also, this week the drama over another government shutdown and the continuation of the UAW strike will influence markets.

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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