While it was a week filled with big events, stocks actually had a relatively calm week. On Wednesday, the Federal Reserve FOMC meeting showed a Fed that has every intention to let the economy run hot, even as inflationary readings pick up. The Fed views the spikes we are seeing in commodities and other production inputs as “transitory.” Notable market participants such as Jeff Gundlach and David Einhorn disagree. They believe that the Fed is making a poor guess on the nature of these price spikes.
Meanwhile, President Biden held his first joint-session Congressional speech on Wednesday night. In the speech, Biden unveiled his administration’s vision for government programs that aspire to be as big as “The Great Society” (LBJ) and “The New Deal” (FDR). I guess we can now start referring to the President as “JRB!”
The proposed spending would be partially paid for by an ambitious overhaul of the tax code (which had already been overhauled in late 2017) and a lot of new debt. The market seems to be taking a wait-and-see attitude, as the Democrats in Congress cannot afford one defection in the Senate or six defections in the House.
Also last week, Big Tech earnings were just ridiculous; smashing already very high Wall Street expectations to the upside.
- The S&P 500 ended up nearly unchanged week-over-week. The average daily move was .34%.
- The NASDAQ declined. The average daily move for the week was 1.09%.
- The two-year Treasury yield was flat for the week, closing at .16% on Friday.
- The 10-year Treasury yield rose seven basis points for the week, closing at 1.63% on Friday.
- The VIX Index rose 7% for the week, closing at 18.61 on Friday.
- The MOVE Index was decreased 3% for the week, closing at 58.13 on Friday.
- Five-year Investment Grade Corporates (as measured by Markit CDX) tightened one basis point for the week, closing at 51 basis points on Friday.
- High-yield corporate debt (as measured by Markit CDX) tightened seven basis points for the week, closing at 289 basis points on Friday.
- US Dollar Index advanced 0.5% for the week, closing at 91.28 on Friday.
- WTI Crude rose 2% for the week, using the June WTI Futures contract, and closing at 63.58 Friday.
- Gold, as measured by the June 2021 futures contract, fell 0.6% for the week, closing at 1,768 on Friday.
- Bitcoin rose 10% for the week, closing at 57,401 on Friday.
The Week Ahead:
We come into Monday morning with global equities higher and Treasury yields mostly unchanged. We have a heavy data week ahead, culminating with employment numbers for April on Friday.
As earning season winds down and the market begins to weigh the odds of Biden’s fiscal spending plans, we think both equity and rate volatility will pick up. The debate over the nature of inflationary price spikes (transitory or not) will continue to heat up. The developed world has been waiting decades for inflation and it may finally be here. As the old saying goes, “Be careful what you wish for because you just might get it.”
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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