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Market Commentary: Week of June 22, 2020


Market commentary week of june 22 2020_bodyWhat happened:

Last week, stocks spent the days grinding back after the prior week’s late selloff. Treasury rates were mostly unchanged as were investment grade and high yield bonds. Risk assets just seemed to want to go up, more or less ignoring the rising COVID hospitalization numbers in Florida, Texas, and Arizona to focus more on talk of a new infrastructure package from the White House and more enactment from the Fed’s Secondary Market Corporate Credit Facility (SMCCF). What was interesting about the latter was that the Fed was simply saying that they were going to start in some way, shape, or form on initiating a policy that already drove a tremendous two-month rally in investment-grade and high-yield bonds that started in late March when the SMCCF was announced. Since that time, there has been plenty of liquidity in secondary corporate issues so the Fed has had their work done for them. The announcement last week did not give size or scope but rather the promise of enacting the program itself. Kicking the tires and making sure the engine turns over, if you will.

  • The S&P 500 increased 1.8% the week. The average daily move for the week was 0.74%.

  • The NASDAQ increased 3.7% for the week. The average daily move for the week was .72%.

  • The 2-year Treasury decreased .5 basis points for the week, closing at .189% Friday.

  • The 10-year Treasury decreased 1 basis point for the week, closing at .69.5% Friday.

  • The VIX Index decreased 3%, closing at 35.12 Friday.

  • The MOVE Index decreased 4% for the week, closing at 53.45 Friday.

  • 5-year Investment Grade Corporates (as measured by Markit CDX) tightened 4.5 basis points for the week, closing at 71.5 basis points Friday (from March 1st; high 152 bps, low 65 bps). High-yield corporate debt (as measured by Markit CDX) tightened 4 basis points, closing at 466 basis points (from March 1st; high 871, low 364).

  • US Dollar Index was flat, closing at 97.62 on Friday.

  • WTI Crude was up 10% using the July WTI Futures contract, closing at 39.75

What’s going to happen?

The outbreak of new COVID cases in the U.S.—as well as the rest of the world—continues to be alarming, but has yet to really dent risk-assets or drive a renewed flight to quality. The COVID trend is going in the wrong direction throughout most of the world as well as the U.S. Over the weekend, President Trump, in an awkward move, fired the New York Southern District U.S. Attorney who was overseeing many of the cases that had been brought against him in that district. Normally, this would be treated as a big deal and the markets would reflect it. However, we seem to have grown impervious to such things, so we don’t expect much reaction out of the markets. It will be a pretty heavy data week with housing and manufacturing data, durable goods, and personal spending. We will also be watching initial jobless claims, which have remained stubbornly high.

 

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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Market commentary week of june 22 2020_listing

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