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Both risk and Treasury markets spent most of last week guessing what Fed Chairman Powell was going to say when he spoke at the annual Fed summit at Jackson Hole, WY, then reacting to the actual address on Friday. Chairman Powell provided what can be called a “dovish taper”. He acknowledged the time may be coming soon to begin tapering the Fed’s massive quantitative easing program, but that tapering would be gradual and data-dependent. The Chairman also made it clear that a move to tapering would not be accompanied by an increase in Fed policy rates. Mr. Powell made it very clear that rate tightening on the short end of the yield curve was a very long way off. In response, the USD fell sharply, and commodities spiked along with equities and corporate debt. Tech stocks price movements have been strongly correlated to interest rates, so as the bond market rallied so did tech stocks, outperforming other sectors.
- The S&P 500 advanced 1.51%. The index set a new all-time high Friday. The average daily move was 0.54%.
- The NASDAQ rose 2.8%. The index set a new all-time high Friday. The average daily move for the week was 0.82%.
- The two-year Treasury yield fell one basis point for the week closing .22% on Friday. Year-to-date high yield .27%, low yield .10%.
- The 10-year Treasury yield increased five basis points for the week, closing at 1.31% Friday. Year-to-date high yield 1.74%, low yield .91%.
- The VIX Index fell 12% for the week, closing at 16.39 Friday. Year-to-date high 37.21 and low 15.07.
- The MOVE dropped 2% for the week, closing at 57.98 on Friday. Year-to-date high 75.66, and low 42.53.
- Five-year Investment Grade Corporates (as measured by Markit CDX) tightened three basis points for the week, closing at 46 basis points Friday, setting a new low for the year. High spread year-to-date 58.07 and low of 46.56.
- High yield corporate debt (as measured by Markit CDX) tightened 17 basis points for the week, closing at 276 basis points on Friday. High spread year-to-date 319, low 269.
- U.S. Dollar Index weakened 0.9% for the week, closing at 92.69 on Friday. High reading year-to-date 93.57, low 89.44.
- WTI Crude rose 11% for the week using the October WTI Futures contract, closing at 68.74 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 3% for the week closing at 1,820 on Friday. High price for the front contract year-to-date 1,954, low 1,678.
- Bitcoin was largely unchanged for the week, closing at 48,921 Friday. High price year-to-date 63,410, low 29,865.
The Week Ahead
We come in this morning with global equities and Treasury yields mostly unchanged. We currently have three crises hitting the U.S: the tragedy unfolding in Afghanistan, Hurricane Ida, and the growing COVID-19 crisis. So far, the markets are fairly divorced from these terrible events. We believe that will continue for the foreseeable future.
This week is a very heavy data week with Friday’s employment report being the big event. Liquidity has been a bit choppy as we come to the end of summer. Given the latest rally in risk assets, caused mainly by low and tame interest rates, a miss to the upside for the employment report will most likely bring about a risk asset retreat from all-time record highs. A miss to the downside will add fuel to the rally.
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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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.