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    Capital Markets | 4 min read

    Market Commentary: Week of August 23, 2021

    Last Week

    A combination of relatively hawkish July FOMC minutes and softer global economic reports gave risk markets a slightly negative tone last week. Additionally, industrial commodities took it on the chin, led by WTI crude, which fell over nine percent. Volatility returned to equities as the VIX rose 20%. The FOMC minutes revealed that QE tapering could come as soon as next month’s FOMC (September 22). The more hawkish Fed view showed up in the currency markets as the U.S. Dollar Index (DXY) rose over one percent, hitting a high for the year. Treasury yields have settled into a relatively tight range as they await more information, possible from the Fed’s Jackson Hole summit this week. The labor market continues to recover as initial jobless claims continue to decline.

    • The S&P 500 declined 0.59%. The average daily move was 0.54%.
    • The NASDAQ fell 0.74%. The average daily move for the week was 0.66%.
    • The two-year Treasury yield rose two basis points for the week, closing 0.23% on Friday. Year-to-date high yield 0.27%, low yield 0.10%.
    • The 10-year Treasury yield fell two basis points for the week, closing at 1.26% Friday. Year-to-date high yield 1.74%, low yield 0.91%.
    • The VIX Index rose 20% for the week, closing at 18.56 Friday. Year-to-date high 37.21 and low 15.07.
    • The MOVE increased by eight percent for the week, closing at 59.95 on Friday. Year-to-date high 75.66 and low 42.53.
    • Five-year Investment Grade Corporates (as measured by Markit CDX) widened two basis points for the week, closing at 50 basis points Friday. High spread year-to-date was 58.07 with a low of 46.88.
    • High Yield corporate debt (as measured by Markit CDX) widened nine basis points for the week, closing at 293 basis points on Friday. High spread year-to-date 319, low 269.
    • U.S. Dollar Index strengthened 1.06% for the week, closing at 93.496 on Friday. On Thursday, the index set a high for the year. High reading year-to-date 93.57, low 89.44.
    • WTI Crude plunged nine percent for the week using the October WTI Futures contract, closing at 62.14 Friday. High price for the front contract year-to-date 75.25, low 47.62.
    • Gold, as measured by the December 2021 futures contract, rose 0.3% for the week, closing at 1,784 on Friday. High price for the front contract year-to-date 1,954, low 1,678.
    • Bitcoin increased 2.2% for the week, closing at 48,668 Friday. High price year-to-date 63,410, low 29,865.

    The Week Ahead

    We come in this morning with global equities up a fair amount; commodities getting a bounce and Treasury yields ups slightly. It is a busy data week as we get manufacturing and services PMI today, Home Sales tomorrow, Durable Goods Wednesday and the Fed’s Jackson Hole summit on Thursday and Friday. It is anticipated that the Fed will signal the beginning of the QE tapering cycle starting next month.

    Right now, the Fed is adding $80 billion Treasuries and $40 billion MBS a month. The operative word there is “adding”. The Fed not only adds every month but also reinvests runoff. There are months where the Fed will buy over $100 billion MBS as amortization and prepayments get reinvested. That amount of buying absorbs a very large percentage of new MBS production every month. Will a modest tapering of that activity really produce Taper Tantrum 2.0? We don’t think so.

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    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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    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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