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Market Commentary: Week of March 23, 2020

market-commentary-week-of-march-23-bodyWhat Happened:

Last week was perhaps like no other week. On Sunday night the Fed tried shock and awe, slashing their policy rate to zero (0-.25%), adding trillions of new liquidity vehicles and announcing new Quantitative Easing measures, $500 billion Treasury notes and bonds and $200 billion Agency MBS. The result was complete panic as the E mini S&P futures went limit down (5%) right out of the gate. When trading opened Monday morning the carnage continued as the S&P dropped over 11.98%, the third biggest percentage drop in history. As the week continued, anything that was not a short-term T-Bill (whose yields went negative) was dumped. Actually to clarify, anything that could relatively be converted into cash, such as Treasury notes and bonds, short-term high-grade municipal bonds, gold, Agency MBS was sold to raise cash to meet redemption or margin demand for assets that couldn’t be sold at all. We know that this has probably been said ad nauseum, but the markets are broken. We are simply facing something the modern world has never seen, a complete and sustained freezing of the global economy. By week’s end economists were predicting double-digit drops in GDP and sky-rocketing unemployment. Nobody argued.

  • The S&P 500 was down 15% for the week. The average daily move for the week was 5%

  • The NASDAQ was down 13% for the week. The average daily move for the week was 6%.

  • The 2-year Treasury dropped 18 basis points, closing at .31% Friday.

  • The 10-year Treasury dropped 10 basis points, closing at .85% Friday

  • The VIX Index increased 14%, closing at 66.04 Friday. On Monday, the VIX closed at 82.60, a new all-time high.

  • The MOVE Index decreased 4%, closing at 133.37 Friday; the highest level since 2009.

  • 5-year Investment-Grade Corporates (as measured by Markit CDX) widened 44 basis points, closing at 151.8 basis points Friday, a new high since Markit began recording in 2011. 5-year High-Yield corporate debt (as measured by Markit CDX) widened 290 basis points, closing at 849.96 basis points, a new all-time high since Markit began recording in 2011.

  • US Dollar Index increased 4.1%, closing at 102.82 Friday, the highest close since 2016

  • WTI Crude was down 29%, closing at 22.43 Friday. On Wednesday WTI Crude hit lowest level since 2002.

What’s going to happen?  

It took Emini S&P futures 3 minutes to go limit down (just like last Sunday night). WTI Crude plunged 7% on the open and the news out of Washington DC is, no stimulus package for the President’s desk on Monday. The virus news from hard-hit Europe is dreadful and it seems as though New York is going to be under siege this week. Many states have issued stay in place orders. If Congress can agree on a massive stimulus package early this week, we may get a nice bounce in equities, but we feel that will be short-lived. Writing the legislation is the “easy” part, implementing quickly and efficiently is something altogether different. One thing that sticks out like a very sore thumb are high-grade, short duration municipal bonds. AAA 3-month tax exempt bonds yielding 2.85% while 3-month Treasury bills yield negative 1.5 basis points? The Fed needs to ask Congress to expand their permissible balance sheet items. States, cities and towns can’t be allowed to fail because of, essentially, a prolonged act of God. We expect this to be addressed this week. On the data side, we had a peek at the first March manufacturing numbers last week (Empire Manufacturing and Philadelphia Fed) and they were both awful. Tuesday we get PMI Manufacturing, Wednesday we get PMI Service Industry and Thursday will be the first Jobless Claims numbers since the virus hit, street economists predict 1.5 million. It is not going to be a good week.


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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