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Market Commentary: Week of June 8, 2020


Market Commentary Week of June 8 2020_bodyWhat happened:

The week was dominated by some of the biggest protests and civil unrest throughout the country since the late 1960s. Stocks held a positive tone against adversity and then went ballistic when a shocking May BLS employment report came out Friday. The report showed a LOWER unemployment rate and a 2.5 million job GAIN, versus estimates of a 7.5 million job LOSS! While it is true that the ADP Employment Change report, released just two days prior, showed far fewer job losses than projected, a job gain on Friday just was not in anyone’s crystal ball; even though the BLS issued a notice with the report that there has been an error in the survey counting furloughed workers as “not unintentionally unemployed.” If BLS had reported properly, the May unemployment rate would have been three percentage points lower and April would have been four percentage points lower. Stocks weren’t letting those revisions get in the way of a little Friday fiesta. Unfortunately, the BLS is learning right along with everyone else how to handle something that has never happened before, along with government aid policies never used before. The household survey done by the BLS every month traditionally has lots of quirks and weaknesses in normal times—in times like these, good luck. That being said, it does appear that the employment situation is not as horrible as it was thought to be as the country reopens slowly in some regions and more quickly in others. Stocks and corporate debt are priced for the sharpest of V-shaped recoveries. We will just have to hope that is right.

  • The S&P 500 increased 4.8% for the week. The average daily move for the week was 1.04%. The index is now up 43% from the March 23rd

  • The NASDAQ increased 1.8% for the week. The average daily move for the week was .7%. The index is now up 43% from the March 23rd

  • The 2-year Treasury increased 4.6 basis points for the week, closing at .209% on Friday.

  • The 10-year Treasury increased 24.5 basis points for the week, closing at .90% on Friday.

  • The VIX Index decreased 10%, closing at 24.52 Friday.

  • The MOVE Index increased 20% for the week, closing at 61.97 Friday.

  • 5-year Investment Grade Corporates (as measured by Markit CDX) tightened 12 basis points for the week, closing at 65 basis points Friday (Lowest level since end of February). High-yield corporate debt (as measured by Markit CDX) tightened 126 basis points, closing at 413 basis points (from March 1st; high 871, low 364).

  • US Dollar Index was down 1.4%, closing at 96.94 Friday. This was the lowest close since March 16th.

  • WTI Crude was up 11% using the July WTI Futures contract, closing at 39.56.

What’s going to happen?

While keeping an eye on what continues to unfold with the mass protests across the nation, it will be a busy week for markets. We have CPI on Wednesday, PPI on Thursday, FOMC meeting, communique and press conference on Wednesday, and what should be a very interesting initial and continuing jobless claims Thursday. We would say that the equity and corporate credit markets have priced in perfection already, but we said that last week and they got even “more perfect.” The S&P this morning is about 1% away from being flat on the year. The NASDAQ is already up over 9%. We seem to have forgotten there’s that pesky virus out there producing flare-ups in some states. It should be another interesting week.

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 8 2020_listing

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