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Market Commentary: Week of May 18, 2020

market_commentary_week_of_may_18_2020_bodyWhat happened:

Last week was shaped around Fed Chairman Powell’s speech to the Peterson Institute for International Economics. The Chairman warned that the economic recovery might be a prolonged one with the recovery period lasting until late 2021. He also restated what most acknowledge about the 2nd Quarter—it will be awful. Powell also pushed back on negative rates, which makes us happy. Negative rates, in our opinion, cause more harm than good. With Powell’s speech, equity markets and corporate debt sold off, with the mighty surge in large tech retreating some. Equities continue to look to the future, discounting the present condition. Equities are able to do that, high-yield corporate debt cannot, as the future means little if the present kills you. High-yield spreads have widened by a fair amount in response. We believe that the eventual washout is coming for that sector, both for bonds and syndicated loans, even as the Fed began buying ETFs last week. The big success story this week was crude; with the economy partially reopening and producers signaling large production cuts, crude surged, closing near the $30 (WTI) by Friday. Crude seems to trade between horror and euphoria. Let us hope reality is somewhere in the middle.

  • The S&P 500 decreased 2.3% the week. The average daily move for the week was 0.8%.

  • The NASDAQ decreased 1.2% for the week. The average daily move for the week was 1.2%.

  • The 2-year Treasury decreased 1.3 basis points, closing at .147% on Friday.

  • The 10-year Treasury decreased 4 basis points, closing at .64% on Friday.

  • The VIX Index increased 14% closing at 31.89 Friday.

  • The MOVE Index decreased 2%, closing at 56.5 Friday.

  • 5-year Investment-Grade Corporates (as measured by Markit CDX) widened for the week closing at 95 basis points Friday (from March 1st, high 151; low 66). High-yield corporate debt (as measured by Markit CDX) widened 52 basis points, closing at 685 basis points (from March 1st, high 871; low 364).

  • US Dollar Index was up 0.7%, closing at 100.19 on Friday.

  • WTI Crude was up 17% using the June WTI Futures contract, closing at 29.43.

What’s going to happen?

Cheating a bit here and writing Monday morning, we are seeing a big positive move in risk assets as Moderna announced positive early signs of a vaccine. Great news—the company hopes to run full trials by July. If still positive, experts believe that the mass production of the vaccine would take a year, which seems to hit the early target set by experts. Meanwhile, the country reopens some states cautiously, and some states, not so much. Additionally, the Fed and Treasury are taking steps to start their Main Street Lending and Primary Corporate lending programs. The Democrats in The House passed a $3 trillion aid bill Friday night. The Republican Senate and White House are pushing back. Despite some harsh rhetoric, cooler heads believe there is a lot of room for compromise. On the negative side, we have yet to peak on unemployment, weekly new jobless claims are still in the millions, state and local government’s budgets are in tatters, while the virus is still out there, completely uncaring about Democrats, Republicans, Red, and Blue states. It just kills, and every week it seems we find out something new and terrible about it. Reopening without adequate testing is a recipe for a second wave. Treasury bills, notes, and bonds reflect that fear while risk assets do not. Pray for the best and prepare for the worst.



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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