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    Capital Markets | 5 min read

    Market Commentary: Week of November 15, 2021

    Last Week

    The week began with the continued unwinding of the massive, long-dated Treasury short positions that have roiled the markets and, in large part, caused the 10-year to revisit technical lows in yields, getting as low as 1.41% on Tuesday. Then, October CPI came on Wednesday, and the market went from student body right to student body left. The CPI rose more than expected and was the highest reading in over 30 years.

    The belly of the Treasury curve repriced for a more aggressive Fed, as the five-year spiked 13 basis points in yield on Wednesday. Five-year inflation break evens moved sharply higher, crossing 3% on Wednesday and settling at 3.12% on Friday. Also on Friday, more fuel was added to the inflation fire as the BLS JOLT Quit Rate set a new record with over four million Americans quitting their jobs in September. That is usually read as renewed worker strength, quitting a job with confidence of finding a better one.

    Stocks were mostly in the passenger seat to fixed income last week, declining slightly by week’s end.

    • Last week the S&P 500 fell 0.3%. The index had set another new all-time high on Monday before retreating. The average daily move was 0.41%. 
    • The NASDAQ declined 0.7%, after beginning the week with a new all-time high Monday. The average daily move for the week was .77%.
    • The 2-year Treasury yield surged 11 basis points for the week closing .51% on Friday, a new year-to-date high. Year-to-date high yield .51%, low yield .10%.
    • The 10-year Treasury yield increased 11 basis points for the week, closing at 1.56% Friday. Year-to-date high yield 1.74%, low yield .91%.
    • The VIX Index fell 1.2% for the week, closing at 16.29 Friday. Year-to-date high 37.21 and low 15.07.
    • The MOVE Index rose 18% for the week, closing at 78.61 on Friday, a new year-to-date high. Year-to-date high 78.61, and low 42.53.
    • Five-year Investment Grade Corporates (as measured by Markit CDX) widened 2 basis points for the week closing at 51 basis points Friday. High spread Year-to-date 58.07 and low of 46.56.
    • High Yield corporate debt (as measured by Markit CDX) widened 7 basis points, closing at 295 basis points on Friday. High spread year-to-date 319, low 269.
    • U.S. Dollar Index advanced 0.9% for the week, closing at 95.13 on Friday. On Thursday, the index hit a new year-to-date high. High reading Year-to-date 95.18 low 89.44.   
    • WTI Crude declined 0.5% for the week using the December WTI Futures contract, closing at 80.79 Friday. High price for the front contract year-to-date 83.76, low 47.62.  
    • Gold, as measured by the December 2021 futures contract, increased 2.7% for the week closing at 1,869 on Friday. High price for the front contract year-to-date 1,954, low 1,678.
    • Bitcoin rose 5.1% for the week, closing at 64,101 Friday. Bitcoin hit a new all-time high on Tuesday, 67,734. High price year-to-date 65.996, low 29,865.

    The Week Ahead  

    We come in this morning with Treasury yields down slightly and equities up modestly. After the huge sell-off Wednesday, rates seem to have stabilized some. Looking at the Fed Funds futures curve, the market is now expecting at least two Fed rate hikes in 2022 while the Eurodollar futures curve leans into three more hikes in 2023. As far as inflation readings, one-year to five-year break evens are now all over 3%. Perhaps the inflation trade is getting a bit overdone. However, the market will wait for everyone to get short again before it rallies hard!  We have a relatively quiet week for economic data.

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    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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    John Tuohy

    John Tuohy is CEO of SWBC Investment Services, LLC, a Broker/Dealer and SWBC Investment Company, an SEC Registered Investment Advisor (RIA). In his role, John is responsible for identifying, developing, and executing the division's strategic plan and all business development, sales, and marketing activities.

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