You can almost hear the nervous laughter reverberating across financial markets with the jump in yields on the longer end of the yield curve. Since the end of January, yields on the 10-year Treasury n...
Last week began with Reddit’s WallStreetBets, and ended with Reddit’s WallStreetBets! The creators of the payment-for-order-flow mousetrap, Robinhood, probably never dreamed the army of young investors whose order flow they sold to make their money (for a long time not disclosing to its customers) and their $12 billion pre-IPO valuation would one day rise up and punch them in the snout.
High Frequency Trading market-maker and hedge fund giant Citadel probably never dreamed that this army—which they helped create by purchasing Robinhood’s order flow for prices much higher than any other brokers order flow—would bite them in the tush, as well. However, it did!
Last week was simply fascinating as the Reddit army (along with a lot of “smart money” piling on) short-squeezed long-short strategy hedge funds to their knees. Then, on Thursday, the Reddit army put Robinhood to their knees as the DTCC made sharp margin calls on the broker to make sure trades were covered and would not fail if the stocks their clients who were buying would settle if GameStop dropped precipitously. Robinhood had to raise $1 billion Wednesday evening as they drew heavily on their funding lines. They also banned buying of the stocks that were being squeezed, which enraged its customers and created all kinds of rumors and accusations.
Meanwhile, closing out of short position by hedge funds created a liquidation of popular stocks that caused major indices to decline sharply. In other news last week, the FOMC finished their meeting Wednesday and gave the clear, “Steady as she goes” signal that they would not be tapering bond purchases anytime soon.
The S&P 500 dropped 3.3% for the week. The average daily move for the week was 1.2%.
The NASDAQ lost 2.8% for the week. The average daily move for the week was 1.17%.
The two-year Treasury yield fell one basis point for the week, closing at .11% on Friday.
The 10-year Treasury yield fell one basis point for the week, closing at 1.07% Friday.
The VIX Index rose 51% for the week, closing at 33.09 on Friday.
The MOVE Index increased 10% for the week, closing at 47.41 Friday.
Five-year Investment Grade Corporates (as measured by Markit CDX) widened five basis points for the week, closing at 57 basis points on Friday.
High-yield corporate debt (as measured by Markit CDX) widened 20 basis point for the week, closing at 326 basis points on Friday.
US Dollar Index was relatively unchanged for the week, closing at 90.58 on Friday.
WTI Crude was unchanged for the week using the March WTI Futures contract, closing at 52.20 Friday.
Gold, as measured by the February 2021 futures contract, was little changed for the week, closing at 1,847 on Friday.
Bitcoin rose 14% for the week, closing at 38,627 on Friday.
The Week Ahead:
Equities are up across the globe this morning after last week’s thrashing. The COVID-19 news with regard to variant strains and poorly performing vaccine programs seems to be more alarming by the day. This, combined with further Reddit mania (a bit insane to equate the gravity of the two), poses a nasty threat. Hopefully the world can get its act together on the vaccine front. With regard to the Reddit army, it seems that silver has now caught their eye! We’ll see what this week brings.
Meanwhile, we have the BLS Employment Report on Friday. That report could be a major market mover, as we get to see what effect the post-holiday surge has had on the job market.
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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