Each year in May, we celebrate Mental Health Awareness month. After two years of pandemic stress, keeping up with constantly changing news cycles, and dealing with increasing economic uncertainty, we ...
Last week was simply brutal. In rates, a 100% probability of four FOMC rate hikes in 2022 is priced into the front of the yield curve with some, like Goldman Sachs, predicting a hike at every meeting starting March 16 or seven in total. Meanwhile, the Treasury yield curve flattened as signs point to a slowing recovery. Combining a slow down with the specter of the Fed aggressively tightening policy is most unpleasant. We do not hear much snickering at the possibility of stagflation anymore.
Equity volatility exploded as the VIX rose 50% for the week. Earnings week was highlighted by a very disappointing Netflix result. The mood in the market is squarely focused on the glass being half-empty. Not all was a loss, though, as the S&P/LSTA Leveraged Loan Index hit its highest level since 2006.
It seems investors are entranced with the fact that syndicated loans carry a floating rate as opposed to the fact that many of these loans are rated at the lowest levels of junk. As we go into a Fed-tightening mode, that increases their debt-service costs. Good times.
- S&P 500 declined 5.7% for the week. The average daily move was 1.45%.
- The NASDAQ plunged 7.6% the week. The average daily move for the week was 1.94%.
- The 2-year Treasury yield rose 3 basis points for the week closing 1.01% on Friday. Year-over-year high yield 1.06%, low yield .10%.
- The 10-year Treasury yield fell 3 basis points for the week, closing at 1.76% Friday. Year-over-year high yield 1.79%, low yield .91%.
- The VIX Index increased 50% for the week, closing at 28.85 Friday. Year-over-year high 37.21 and low 15.07.
- The MOVE Index rose 6% for the week, closing at 81.03 on Friday. Year-over-year high 89.45 and low 42.53.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 4 basis points for the week closing at 58 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 23 basis points, closing at 330 basis points on Friday. Year-over-year high 330, and low 269.
- U.S. Dollar Index rose .5% for the week closing at 95.64 on Friday. Year-over-year high 96.88 and low 89.44.
- WTI Crude rose 2% for the week using the March WTI Futures contract, closing at 85.14 Friday. High price for the front contract year over year 83.76, and low 47.62.
- Gold, as measured by the March 2022 futures contract, rose .8% for the week closing at 1,833 on Friday. High price for the front contract year over year 1,954 and low 1,678.
- Bitcoin plunged 15%, closing at 36,692 Friday. High price year over year 67,734 and low 29,865.
The Week Ahead
We come in this morning pretty much in a continuation from where we left off Friday. The Treasury curve is flattening while global equity takes it on the chin. So many things to worry about, so little time.
Global health crisis, plus global inflation crisis, plus the Ukrainian geopolitical crisis, equals snake eyes for risk. The markets are also antsy ahead of the Fed’s FOMC meeting, which starts Tuesday and wraps up Wednesday afternoon. Crypto continues to slide as Bitcoin is down another 5% this morning. Earnings week rolls on with many bell-weather names reporting, starting today.
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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