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    Capital Markets | 4 min read

    Market Commentary: Week of August 10, 2020

    What Happened:

    Last week was all “Can’t stop, won’t stop” for risk assets. Equities pushed even higher with the S&P 500 making gains every day, and the NASDAQ hitting another all-time high. After hitting all-time lows in yield, Treasuries backed up slightly. It is hard to reconcile all-time highs in stocks and all-time lows in Treasury yields, but there it is. Investment-grade and high-yield bonds tightened significantly, as the market gobbled up new issue as if they will not make them anymore. The backdrop this week was the breakdown of stimulus talks between The White House and the Democratic House. With that, unemployment bonuses have expired, and rental eviction and many consumer loan forbearances are about to end. It seems that bad news is good news and a signal to take more risk; investors are being pulled along, whether they like it or not. The markets have been conditioned to believe that the worse things get, the bigger the next basket of monetary policy goodies from the Fed will be. State re-openings are being scaled back and, as previously stated, the only piece of fiscal stimulus that actually seems to have worked, the $600 a week bonus, is over. Once again, the Fed is the only game in town. Let’s see what they come up with next!

    • The S&P 500 was up 2.4% for the week. The average daily move for the week was .48%.

    • The NASDAQ increased 2.4% for the week. The average daily move for the week was .84%; the index hit an all-time high on Thursday.

    • The 2-year Treasury increased two basis points, closing at .13% on Friday setting a new all-time low yield.

    • The 10-year Treasury increased four basis points for the week, closing at .57% on Friday.

    • The VIX Index declined 9.2% for the week, closing at 22.21 Friday. This week the VIX posted its lowest reading since the end of February of this year on Friday.

    • The MOVE Index fell 1.2%, closing at 41.46 on Friday.

    • 5-year Investment Grade Corporates (as measured by Markit CDX) tightened four basis points for the week, closing at 65 basis points on Friday (from March 1st; high 152 bps, low 65 bps). High-yield corporate debt (as measured by Markit CDX) tightened 56 basis points, closing at 387 basis points (from March 1st; high 871, low 364).

    • US Dollar Index was flat, closing at 93.44 on Friday.

    • WTI Crude increased 2.4% for the week using the September WTI Futures contract, closing at 41.22.

    • Gold, as measured by the December 2020 futures contract, increased 2.1%. On Thursday, the contract settled at an all-time high at 2,069 --before retreating a bit to close at 2,028.

    What’s going to Happen?

    The data this week includes inflation data, retail sales and, of course, initial jobless claims on Thursday. Bloomberg survey has that number coming in at around 1.1 million. We may see a bit of a spike in the jobless claims number as the employment data last week suggested that the low-hanging fruit has been picked with regard to job adds. The fiscal stimulus battle between Republicans and Democrats continues to rage. President Trump signed executive orders to keep the unemployment bonus in place, albeit a lower $400 a week, and with the expectations that the states will contribute to the bonus. That is probably a non-starter, as the President most probably does not have the legal authority to do that. We are not sure what additional bad news or shocks we would have to have to stop risk assets from grinding higher, but it would have to be bigger than a global pandemic and a global depression. Perhaps something like a Fed official casually putting his or her foot down, demanding fiscal action because monetary policy is already uber-accommodative. Somewhat crazy, eh?

     

    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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    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.

    © 2020 SWBC. All rights reserved. Securities offered through SWBC Investment Services, LLC, a registered broker/dealer. Member FINRA & SIPC. Advisory services offered through SWBC Investment Company, a Registered Investment Advisor, registered as such with the US Securities & Exchange Commission. SWBC Investment Services, LLC is under separate ownership from any other named entity. SWBC Investment Services, LLC a division of SWBC, is a nationwide partnership of advisor.

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    John Tuohy

    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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