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For the second straight week, the financial markets took hits from all directions. There was literally no place to hide.
On the rates front, with inflation showing no signs of peaking and Fed Chairman Powell talking very tough regarding the “extremely historically tight” and “unsustainably hot” labor market, 75 basis point FOMC hikes were put front and center, sending the two-year Treasury note yield up over 20 basis points. The long end of the curve, after the prior week’s short-cover rally, also rose as the 10-year note now has 3% in its sights. Markets spread to the Treasury curve were pummeled.
Weaker credit markets, such as high-yield corporate and municipal bonds, as well as emerging markets, are looking quite shaky. U.S. equities fared no better, declining sharply across the board as the S&P approached bear-market territory.
The highlight (or lowlight) of the week was the enormous egg laid by Netflix’s earnings after the market closed Tuesday as investors were taken by complete surprise by the company’s first-quarter earnings and forward outlook. The stock lost over 35% of its market value in just one day.
Meanwhile, the COVID-19 situation in China continued to deteriorate as lockdowns continue to increase in severity.
All in all, if it were a fight, they would have stopped it, but unfortunately, it is not.
- S&P 500, fell 2.75% for the week. The average daily move was 1.19%.
- The NASDAQ dropped 3.83% for the week. The average daily move for the week was 1.63%.
- The 2-year Treasury yield rose 21 basis points for the week closing at 2.67% on Friday. High Year-over-year 2.69%, low yield .10%.
- The 10-year Treasury yield rose 8 basis points for the week, closing at 2.90% Friday. Year-over-year high yield 2.94%, low yield .91%.
- The VIX Index rose 24% for the week, closing at 28.21 Friday. Year-over-year high 36.45 and low 15.07.
- The MOVE Index increased 7% for the week, closing at 128.12 on Friday. Year-over-year high 140.03 and low 42.53.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 9 basis points for the week closing at 80 basis points Friday, a new year-over-year high. High spread Year-over-year high 80 and low of 46.56.
- High Yield corporate debt (as measured by Markit CDX) widened by 27 basis points, closing at 435 basis points on Friday, a new year-over-year high. Year-over-year high 435, and low 269.
- U.S. Dollar Index rose 0.7% for the week closing at a new yearly high on Friday. Year-over-year high 101.22 and low 89.44.
- WTI Crude dropped 3.4% for the week using the June WTI Futures contract, closing at 102.07 Friday. Year-over-year 123.70, and low 47.62.
- Gold, as measured by the June 2022 futures contract declined 2% for the week closing at 1,940 on Friday. High price for the front contract year over year is 2,043 and low is 1,678.
- Bitcoin fell 1.9%, closing at 39,621 Friday. High price year over year 67,734 and low 29,865.
The Week Ahead
We come in this morning with risk markets under continued pressure as equities are off in the U.S. and Europe. We’ll see if we get some sort of bounce off “dip-buying” after Friday’s terrible close.
Earnings week continues and all eyes will be on forward guidance with regard to pricing power in the face of worsening inflation and the predictions of a weakening global economy, especially with lockdown concerns in China.
Treasury notes, bonds, and the U.S. dollar are rallying in the risk-off flight to quality. Data is pretty back-end loaded with Personal Income, Personal Spending, and the PCE Core Deflator for March coming in on Friday.
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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