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    Capital Markets | 3 min read

    Market Commentary: Week of June 21, 2021

    Last Week:

    The Fed produced quite a bit of drama last week, first with the FOMC statement and press conference, then with Fed president James Bullard discussing tapering of the Fed’s $120 billion a month quantitative easing program. Essentially, the Fed told us that based on the current economic data they might curtail their super-accommodative, emergency monetary policy by a tiny amount a little earlier than expected, as in, perhaps a year from now as opposed to 2 years. That was all this priced-to-perfection market needed to go into a tizzy! The equity “reflation trade” fizzled as value stock sectors like blanks got pasted. The Treasury yield curve flattened as the 10-year Treasury note yield declined by 13 basis points after the Wednesday FOMC and the two-year Treasury note yield increased by about 11 basis points. Both the VIX and MOVE indices increased sharply. This is all scary as the market’s reaction of near panic to a slight monetary policy change shows the weakness of its foundation.

    • The S&P 500 declined 1.91%. The average daily move was 0.45%.
    • The NASDAQ weakened 0.28%. The average daily move for the week was 0.70%.
    • The two-year Treasury yield rose 11 basis points for the week, closing at .255% on Friday.
    • The 10-year Treasury yield decreased one basis point for the week, closing at 1.44% on Friday.
    • The VIX Index increased 32% for the week, closing at 20.7 on Friday.
    • The MOVE Index rose 19% for the week, closing at 60.45 on Friday.
    • Five-year Investment Grade Corporates (as measured by Markit CDX) widened one basis point for the week, closing at 51 basis points on Friday.
    • High-yield corporate debt (as measured by Markit CDX) widened nine basis points for the week, closing at 287 basis points on Friday.
    • U.S. Dollar Index rose 1.9% on the week, closing at 92.25 on Friday.
    • WTI Crude rose 1% for the week, using the August WTI Futures contract, closing at 71.29 on Friday.
    • Gold, as measured by the August 2021 futures contract plunged 5.85% for the week, closing at 1,769 on Friday.
    • Bitcoin increased 1.4% for the week, closing at 38,205 on Friday.

    The Week Ahead:

    We start the week with equities up a fair amount and Treasury yields up a bit. Last week’s Fed “bombshell” continues to roil the markets and now we must brace for the onslaught of “Fed Speak” as our monetary policy rock stars take to the airwaves and lecture circuit. This week presents a very full economic data calendar, ranging from Durable Goods Orders to housing data to Personal Consumption and the PCE Deflator. Friday’s PCE Deflator release will probably get the most focus, as it is one of the Fed’s favorite inflation measures. The days of declining implied volatility are over.

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    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.

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    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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    John Tuohy

    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.

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