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Market Commentary: Week of August 24, 2020


What Happened:

Another week and another high for stocks. The S&P 500 ground higher to hit an all-time high by week’s end, while the NASDAQ used more of an aerial attack to set its own all-time high on Friday. Corporate debt continues to tighten. Leveraged loans are still a problem, but instead of being radioactive—as they were in March—now their problem is that there are not enough of them for CLO demand. That is a bit scary when you consider that the Wall Street Journal reported this weekend that large company bankruptcies have, in 7 months, surpassed the highs previously set in 2002 and 2008. We get that the equity indices are up because they dominated by a relatively few gigantic companies, but high-yield loans? Meanwhile, the Treasury market regained its composure after the prior week’s supply hiccup with the 10-year falling nine basis points and the long bond yield falling 11 basis points.

  • The S&P 500 was up .74% for the week. The average daily move for the week was .32%. The index set a new all-time high on Friday.

  • The NASDAQ was up 2.6% for the week. The average daily move for the week was .76%. The index set a new all-time high on Friday.

  • The 2-year Treasury was flat on the week, closing at .144% on Friday.

  • The 10-year Treasury decreased 9 basis points for the week, closing at .63% on Friday.

  • The VIX Index decreased slightly for the week, closing at 22.54 on Friday.

  • The MOVE Index increased 5%, closing at 45.14 on Friday.

  • 5-year Investment Grade Corporates (as measured by Markit CDX) were flat for the week closing at 68 basis points Friday (from March 1st; high 152 bps, low 65 bps). High-yield corporate debt (as measured my Markit CDX) tightened 10 basis points, closing at 397 basis points (from March 1st; high 871, low 364).

  • S. Dollar Index was flat for the week, closing at 93.25 on Friday.

  • WTI Crude was flat for the week, using the October WTI Futures contract, closing at 42.34.

  • Gold—as measured by the December 2020 futures contract—was flat, closing at 1,947 on Friday.


What’s Going to Happen

Equities have started the week extending new all-time highs. There is optimism that the Trump Administration will fast-track vaccines and treatments for COVID-19. We hope that this leads to something useful. Part two of the Presidential Election Campaign kicks off Monday with the Republican National Convention. After this week, the sprint starts to the election a little more than two months away—this should be a unique time in our history. We could see a lot of volatility, led by the U.S. Dollar, as both parties fight out the legitimacy of the election, something that we have never seen before during an actual campaign! The best and the brightest (we were not invited!) gather for the annual Jackson Hole symposium this week. Fed governors, presidents, and Chairman Powell will be there speaking. Treasury market will be paying close attention to the Fed’s thoughts and potential expansion of their already uber-ambitious monetary policy.

 

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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