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Market Commentary: Week of May 1, 2023
Written by John Tuohy
May 01, 2023
Last week, equities continued a rather subdued push higher as earnings season continues to paint a relatively good picture. With regard to economic data, the biggest release was Friday’s March PCE report.
Inflation remains stubbornly high with Core-PCE Deflator up 0.3% for the month and up 4.6% for the last 12 months. Furthermore, the Fed’s new favorite, “Super-Core PCE Deflator” (Core minus Housing) rose 0.2% for the month and 4.6% for the year. This data has pretty much locked in another 25-basis point hike in the Fed’s policy rate in May.
Toward the end of the week, the full scope of just how bad things are with “Not Quite Big Enough Not to Fail” First Republic Bank came front and center. As we headed into the weekend, it was clear the bank would fail and the Federal Reserve and the FDIC were arranging a marriage with the true “Too Big to Fail,” JP Morgan. As a result, we had a strong flight to quality rally in Treasury rates with the 2-year note breaking through 4%.
- The S&P 500 rose 0.87% for the week. The average daily move was 0.97%.
- The NASDAQ advanced 1.28% for the week. The average daily move for the week was 1.17%.
- The 2-year Treasury yield fell 18 basis points, closing at 4.00% on Friday. High year-over-year 5.07%, low yield 2.48%.
- The 10-year Treasury yield declined 13 basis points for the week, closing at 3.42% on Friday. Year-over-year high yield 4.24%, low yield 2.58%.
- The VIX Index dropped 5.9% for the week, setting a new year-over-year low, closing at 15.78 on Friday. Year-over-year high 34.45 and low 15.78.
- The MOVE Index rose 1.34% for the week, closing at 122.46 on Friday. Year-over-year high 198.71 and low 97.33.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads were flat for the week closing at 76 basis points on Friday. High spread Year-over-year high of 111 and low of 67.
- High Yield corporate debt (as measured by Markit CDX) spreads decreased by 1 basis point, closing at 466 basis points on Friday. Year-over-year high 627, and low 408.
- US Dollar Index declined 0.16% to 101.66 on Friday. Year-over-year high 114.11 and low 101.01.
- WTI Crude fell 1.40% for the week, using the June WTI Futures contract, closing at 76.78 Friday. Year-over-year high 122.11, and low 66.74.
- Gold, as measured by the June futures contract, rose 0.45% for the week closing at 1,999 on Friday. The high price for the front contract year-over-year is 2,046 and the low is 1,623.
- Bitcoin rallied 7.63% for the week closing at 29,355 on Friday. High price year-over-year 46,312 and low 15,632.
The Week Ahead
We come in this week with Treasury rates up, with the front end leading the way while equities are off a touch. This big news is the takeover of First Republic by JP Morgan. In a perverse outcome, the only bank “Big Enough to Bail” First Republic was the “Too Big to Fail” JPM!
It is evident that, once again, we have either learned nothing or we just like it this way. The Fed is going to ask Congress for another cool set of rules to better regulate the banking system. There’s plenty of regulation already, they just failed to do their job, again. While I believe this, the Fed does too as it released a blistering mea culpa on the failure of Silicon Valley Bank last week.
In other news, we have a very full week with earnings season rolling on for equities, the Fed’s FOMC meeting Tuesday and Wednesday, and a ton of top-tier economic data with the April Non-Farm Payroll report on Friday the most important.
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 & 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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John Tuohy is CEO of SWBC Investment Services, LLC, a Broker/Dealer and SWBC Investment Company, an SEC Registered Investment Advisor (RIA). In his role, John is responsible for identifying, developing, and executing the division's strategic plan and all business development, sales, and marketing activities.
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