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Last week was “all inflation all the time," with a little bit of disappointing large bank earnings thrown in. On Tuesday, we got the headline CPI number for December printing at an optically ugly (but anticipated) seven percent. CPI, excluding Food and Energy, did surprise to the upside, coming in at 5.4% year over year.
On top of the seven percent CPI print, we had Chairman Jerome Powell’s job interview with the Senate Fed Chairman confirmation hearings. As expected, the appearance was really another round of Humphrey Hawkins testimony with the only subject being inflation. Chairman Powell promised vigilance regarding inflation, stating that the Fed will use all its tools. Since most of their tools to fight inflation mean potentially undoing all the “doing” they did to spark demand during the pandemic, the rates markets began to price in the 100% probability of four FOMC rate hikes and quicker tapering and run-off of the Fed’s $8 trillion balance sheet. The continued surge in yields battered the growth-heavy NASDAQ the most. As far as disappointment with big bank earnings, we just have to say, “Really?”
- S&P 500 fell .3% for the week. The average daily move was .57%.
- The NASDAQ declined .3% the week. The average daily move for the week was .96%.
- The 2-year Treasury yield rose 11 basis points for the week closing .97% on Friday. Year-over-year high yield .97%, low yield .10%.
- The 10-year Treasury yield rose 3 basis points for the week, closing at 1.79% Friday. Year-over-year high yield 1.79%, low yield .91%.
- The VIX Index increased 2% for the week, closing at 19.19 Friday. Year-over-year high 37.21 and low 15.07.
- The MOVE Index rose 3% for the week, closing at 76.59 on Friday. Year-over-year high 89.45 and low 42.53.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 1 basis point for the week closing at 54 basis points Friday. High spread year-over-year high 58.07 and low of 46.56.
- High Yield corporate debt (as measured by Markit CDX) tightened 1 basis point, closing at 307 basis points on Friday, year-over-year high 330, and low 269.
- U.S. Dollar Index was fell .6% for the week closing at 95.17 on Friday. Year-over-year high 96.88 and low 89.44.
- WTI Crude rose 6% for the week using the March WTI Futures contract, closing at 83.3 Friday. High price for the front contract year over year 83.76, and low 47.62.
- Gold, as measured by the February 2022 futures contract rose 1% for the week closing at 1,817 on Friday. High price for the front contract year over year 1,954 and low 1,678.
- Bitcoin rose 3%, closing at 43,322 Friday. High price year over year 67,734 and low 29,865.
The Week Ahead
We come in this morning with Treasury yields continuing to surge. The two-year has breached one percent, currently sitting at 1.02%. The market seems to be pricing in a potential five Fed hikes in 2022. It is not a huge probability yet, according to the Fed Funds futures curve, but it is greater than zero, now. It is a relatively quiet week for economic data with stocks across the globe down a fair amount and the poor NASDAQ leading the way. Earnings season picks up steam this week. The operative word this earnings season could be and should be “free cash flow."
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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