As we discussed in part one of our Q1-2 2023 Economic Outlook, the financial sector appears well-positioned for an economic downturn. That being said, we are seeing the deterioration in delinquencies ...
Capital Markets
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4 min read
Last Week
Another week, another new all-time high for stocks. Equities plunged at the beginning of the week. The S&P 500 dropped 1.6% on Monday as risk assets reacted to the very real risk of the COVID-19 Delta variant causing havoc and snuffing out the recovery. However, by Tuesday, the buy dip crowd came in like gangbusters, taking both the S&P 500 and the NASDAQ 100 up to new all-time highs by Friday. The feeling on Monday, in our view, was that perhaps the very strong second-quarter earnings season was a rearview mirror event and the road ahead pointed toward pain. That feeling evaporated into euphoria by Tuesday! Credit spreads on corporate debt should be adjusting to the sharp drop in Treasury yields by widening in spread, but they’re not. Rather they remained mostly unchanged for the week. Meanwhile, Treasury notes and bonds remained well bid. It was a volatile week for volatility as a chart of the VIX resembled a chicken running with its head cut off. The VIX, week over week, ended up dropping seven percent.
- The S&P 500 advanced 1.96% setting another new all-time high on Friday. The average daily move was 1.03%.
- The NASDAQ soared 2.8% setting yet another new all-time high. The average daily move for the week was 0.47%.
- The two-year Treasury yield declined two basis points for the week, closing 0.20% on Friday.
- The 10-year Treasury yield fell one basis point for the week, closing at 1.28% Friday.
- The VIX Index dropped 7% for the week, closing at 17.20 Friday.
- The MOVE Index rose 12% for the week, closing at 65.28 on Friday.
- Five-year Investment Grade Corporates (as measured by Markit CDX) tightened one basis point for the week, closing at 48 basis points Friday.
- High Yield corporate debt (as measured by Markit CDX) was unchanged for the week, closing at 280 basis points on Friday.
- U.S. Dollar Index increased 0.2% on the week, closing at 92.91 on Friday.
- WTI Crude rose 0.7% for the week using the September WTI Futures contract, closing at 72.07 Friday.
- Gold, as measured by the August 2021 futures contract, declined 0.8% for the week, closing at 1,801 on Friday.
- Bitcoin rose 3.2% for the week, closing at 32,021 Friday.
The Week Ahead
Coming in this morning, Treasury yields remain well bid while stocks are off a bit. Earnings season continues following a very strong week. Thoughts are that the good news will continue. The big event this week is the Federal Reserve FOMC meeting that will conclude with the statement and press conference by Chairman Powell on Wednesday at 2PM. This will be yet another crucial meeting. The last meeting gave the sense that consensus was shifting a bit toward the hawkish side. We say “hawkish” in a relative sense since all the voting members are still firmly in favor of keeping the super accommodative stance in place. However, recent testimony from Chairman Powell indicates that he is not ready to seriously consider some removal of policy largess. The Chairman’s thoughts matter most so we will watch to see how he behaves at the presser. The market will also be keen on what the FOMC will say about the rise in domestic and global COVID infections and hospitalizations. Stay tuned!
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.
- 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.
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.
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