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    Capital Markets | 5 min read

    Market Commentary: Week of October 18, 2021

    Last Week

    Another wild week as we continue to live in “interesting times”. The Treasury yield curve steepening theme suddenly reversed course. Last week, 2s-30s flattened 20 basis points as the market began to price in inflationary pressures lasting for a period that is more than transitory. Both the front end and the belly of the curve were hit hard as more Fed tightening was priced in.

    Looking at inflation break evens (Nominal Treasuries minus TIPs), five-year break evens increased another nine basis points last week, ending very close to a multi-year record of 2.76% set in May of this year. The price action of the flattener was violent, probably indicating bad steepening positions being stopped out. Meanwhile, the relentless rise in commodity prices continued with WTI breaching the $80 level. Stocks were impervious to the unsettling drama unfolding in rates and commodities, choosing to focus on big bank earnings, which were very strong mostly off investment banking fees and trading. However, JPM noted that loan demand was still anemic. That is something to keep an eye on.

    • The S&P 500 rose 1.8%. The average daily move was 0.74%.
    • The NASDAQ climbed 2.2%. The average daily move for the week was .75%.
    • The two-year Treasury yield rose eight basis points for the week closing .40% on Friday, a new high for the year. Year-to-date high yield .40%, low yield .10%.
    • The 10-year Treasury yield dropped four basis points for the week, closing at 1.57% Friday. Year-to-date high yield 1.74%, low yield .91%.
    • The VIX Index fell 6% for the week, closing at 16.3 Friday. Year-to-date high 37.21 and low 15.07.
    • The MOVE Index increased 5% for the week, closing at 62.7on Friday. Year-to-date high 75.66, and low 42.53.
    • Five-year Investment Grade Corporates (as measured by Markit CDX) tightened two basis points for the week closing at 52 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 eight basis points, closing at 300 basis points on Friday. High spread year-to-date 319, low 269.
    • U.S. Dollar Index ended mostly unchanged for the week, closing at 93.94 on Friday. It should be noted, on Tuesday, the index set a new high for the year. High reading Year-to-date 94.52, low 89.44.
    • WTI Crude advanced 3.7% for the week using the November WTI Futures contract, closing at 82.28 Friday. Friday’s level represents the new high of the year. Crude has set new year highs for eight consecutive weeks. High price for the front contract year-to-date 82.28, low 47.62.
    • Gold, as measured by the December 2021 futures contract, increased 0.6% for the week closing at 1,757 on Friday. High price for the front contract year-to-date 1,954, low 1,678.
    • Bitcoin rose 16% for the week, closing at 62,526 Friday. High price year-to-date 63,410, low 29,865.

    The Week Ahead

    We come in this morning with U.S. and European equities down a fair amount. Treasury rates are higher as the curve continues to flatten. Corporate earnings season continues this week with many large multinationals reporting. Last week, stocks took the week off worrying about inflation, supply-chain troubles, and focused on strong big bank earnings. This week may be different as large global firms give guidance in the face of continued global shortages of just about everything. Economic data releases for the week include September Industrial Production, Capacity Utilization today, housing data tomorrow and Thursday. Friday’s October PMI reports should be interesting.

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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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