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    Capital Markets | 5 min read

    Market Commentary: Week of November 8, 2021

    Last Week

    “Tap, tap, tap,” went fingers onto the shoulders of traders with bad, short positions in long-dated U.S. Treasuries, and the bloody short squeeze continued. On Wednesday, the FOMC meeting concluded, and the message was mixed. Regarding QE tapering, the Fed delivered as promised, and they will be reducing the amount of Treasuries and MBS they purchase by $15 billion per month. As of the present, the Fed’s balance sheet stands at approximately $8.1 trillion. However, in the Chairman’s press conference, Chairman Powell addressed the inflation issue in a straightforward dovish tone. This gave risk assets the license to get their rally on. Treasuries quickly took aggressive 2022 rate hike expectations out of market prices. This probably should have caused the yield curve to steepen, but it didn’t. Friday’s stronger-than-expected employment numbers gave those looking to cover bad long-dated short positions hope that they could at least get a little higher yield love. They didn’t, and the next student body move was frenetic buying of 10-year, 20-year, and 30-year notes. By week’s end, the yield curve flattened substantially with 2’s-10s flattening 20 basis points.

    • Last week the S&P 500 rose 2%. The index hit another new all-time high on Friday. The average daily move was 0.4%.
    • The NASDAQ surged 3.1%, also hitting a new all-time high Friday. The average daily move for the week was .60%.
    • The 2-year Treasury yield dropped 10 basis points for the week closing .40% on Friday. Year-to-date high yield .50%, low yield .10%.
    • The 10-year Treasury yield fell 11 basis points for the week, closing at 1.45% Friday. Year-to-date high yield 1.74%, low yield .91%.
    • The VIX Index rose 1.4% for the week, closing at 16.48 Friday. Year-to-date high 37.21 and low 15.07.
    • The MOVE Index dropped 11% for the week, closing at 66.90 on Friday. It should be noted that on Monday the index hit a high for the year, 78.34 Year-to-date high 78.34, and low 42.53.
    • 5-year Investment Grade Corporates (as measured by Markit CDX) tightened 3 basis points for the week closing at 49 basis points Friday. High spread Year-to-date 58.07 and low of 46.56.
    • High Yield corporate debt (as measured by Markit CDX) tightened 16 basis points, closing at 288 basis points on Friday. High spread year-to-date 319, low 269.
    • U.S. Dollar Index advanced 0.2% for the week, closing at 94.32 on Friday. High reading Year to date 94.52, low 89.44.
    • WTI Crude declined 2.6% for the week using the December WTI Futures contract, closing at 81.27 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 1.9%% for the week closing at 1,816 on Friday. High price for the front contract year-to-date 1,954, low 1,678.
    • Bitcoin fell 2.3% for the week, closing at 60,976 Friday. High price year-to-date 65.996, low 29,865.

    The Week Ahead

    We come in this morning with Treasury yields up slightly and equities mostly unchanged. With longer-dated Treasuries off a bit in price, we will get to see if more bad shorts rush in to cover, or perhaps that trade is over. Until we get confirmation that the monumental, short squeeze is over, you can forget about interpreting rate moves any way other than bad-position closeouts. There is going to be a lot of coal in hedge fund managers’ stockings for Christmas in the form of high-water market hurdles. We have a very busy data week, with October PPI on Tuesday, CPI on Wednesday, and the BLS’ JOLT report on Friday.

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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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