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    Capital Markets | 4 min read

    Market Commentary: Week of August 3, 2020

    What Happened

    It was another schizophrenic week for the markets. With COVID-19 continuing its rampage across the nation, the Fed pulling no punches on how perilous the economic road ahead is, a lack of a second stimulus plan from the White House and Congress, another week of increasing initial jobless claims, and the visual shock of a 33% contraction of 2nd Quarter U.S. GDP, and safe-haven assets like Treasury notes and gold hitting all-time low yields and high prices, respectively. However, with the big tech stocks—most notably Amazon and Apple crushing earnings—the NASDAQ soared and pulled the rest of the market along with it, which was no easy feat considering that the huge energy sector earnings releases were horrific, not to mention a bankruptcy or two! All in all, it was another pretty depressing week, unless you were on Robinhood buying Kodak.

    • The S&P 500 was up 1.74% for the week. The average daily move for the week was .76%.

    • The NASDAQ increased 3.69% for the week. The average daily move for the week was 1.24%.

    • The 2-year Treasury fell 4 basis points, closing .107% Friday setting a new all-time low yield.

    • The 10-year Treasury decreased 6 basis points for the week, closing at .53% Friday, a new all-time low yield.

    • The VIX Index declined 5.3% for the week closing at 24.46 Friday. This week the VIX posted its lowest reading since the end of February of this year on Wednesday, where it closed at 24.10.

    • The MOVE Index fell 7%, closing at 41.98 Friday. On Thursday, the index posted its all-time low at 40.66.

    • 5-year Investment Grade Corporates (as measured by Markit CDX) tightened 1 basis point for the week, closing at 69 basis points Friday (from March 1st; high 152 bps, low 65 bps). High-yield corporate debt (as measured by Markit CDX) tightened 29 basis points, closing at 433 basis points (from March 1st; high 871, low 364).

    • US Dollar Index lowered by 1.15%, closing at 93.49 on Friday.

    • WTI Crude decreased 2.5% for the week using the September WTI Futures contract, closing at 40.27.

    • Gold, as measured by the August 2020 futures contract, increased 3.4% to close at a new all-time high of 1,963.

    What’s Going to Happen

    There are an awful lot of things in play this week. Front and center will be the negotiation over a new stimulus package that, right now, seems completely stalled. The $600-per-­week unemployment bonus is huge. Combined with forbearance on mortgages, the bonus has helped keep widespread consumer delinquencies somewhat in check. The loss of that bonus coupled with a resurgence of the virus can remove what has become a safety net. Risk assets seem completely unprepared for a bad outcome, so if it comes to be, it could get very nasty, at least it should. It is also a heavy data week, culminating in July employment data. Economists are predicting a job gain of about 1.5 million and a drop in the unemployment rate from last month’s 11.1% to 10.5%. Also this week, we will deal with the Trump Administration’s targeting of Chinese tech firms, with the order from Trump to the Chinese that Tik Tok scram as Microsoft was in the process of buying their US operations—it should get quite interesting. We open the week with Treasury yields at all-time lows. We expect even lower lows as the week wears on.

    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.

    • 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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