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Capital Markets | 4 min read

Market Commentary: Week of October 19, 2020

Last week:

Despite stimulus/relief bill gridlock, the U.S. and Europe getting hit with second wave of COVID-19 and beginning to deploy lockdown measures, and mixed corporate earnings reports—stocks ended up about even for the week, and investment-grade and high-yield bond spreads marginally wider. It is going to take one tremendously bad event to shake up risk assets. With regard to earnings, large money-center banks with large market-making operations made a lot of money on tremendous activity in the quarter to offset miniscule net interest income and increasing credit loss reserves the outlook is dodgy. Banks without global trading operations are roughly in the same position regarding the building of loss reserves, without the benefit of trading and investment banking income. Last week, Fed bank presidents and Fed board members took to the airwaves again, pleading with Washington to get their “stuff” together—to no avail, so far. 

  • The S&P 500 was roughly flat for the week. The average daily move for the week was .62%.

  • The NASDAQ increased .8% for the week. The average daily move for the week was .86%.

  • The two-year Treasury decreased two basis points for the week, closing at .14% Friday.

  • The ten-year Treasury decreased three basis points for the week, closing at .75% Friday.

  • The VIX Index increased 9.6% for the week, closing at 27.4 on Friday.

  • The MOVE Index was flat for the week, closing at 57.25 Friday.

  • Five-year Investment Grade Corporates (as measured by Markit CDX) widened three basis point for the week, closing at 57 basis points on Friday. High-yield corporate debt (as measured by Markit CDX) widened 13 basis points, closing at 374 basis points on Friday.

  • S. Dollar Index increased 0.7%, closing at 93.682 on Friday.

  • WTI Crude increased .5% the week using the December WTI Futures contract, closing at 41.12.

  • Gold, as measured by the December 2020 futures contract, lost 1% and closed at 1,906 on Friday.

The week ahead:

The pivotal event this week could be House Speaker Pelosi’s Tuesday deadline to reach a stimulus/relief bill deal with the White House. Unfortunately, it seems the White House needs to reach a deal with its own party in the Senate! Stocks have opened up pretty strong this morning on the hope of a successful resolution. We wonder what happens if both sides withdraw after Tuesday and leave it until after the election. We just can’t imagine much getting done after the election—if you think politics are poisonous now, wait till Election Day and beyond! One side or the other is going to be very angry and both will be preoccupied with the election results. Third quarter corporate earnings will continue to roll in this week. Economic data this week is pretty light, mostly housing, manufacturing, and service industry PMI coming in Thursday and Friday.

 

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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Investing involves certain risks, including possible loss of principal. You should understand and carefully consider a strategy’s objectives, risks, fees, expenses and other information before investing. The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice. Such views do not take into account the individual financial circumstances or objectives of any investor that receives them. All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.

Securities offered through SWBC Investment Services, LLC, a registered broker/dealer. Member FINRA & SIPC. Advisory services offered through SWBC Investment Company, a Registered Investment Advisor, registered as such with the US Securities & Exchange Commission. SWBC Investment Services, LLC is under separate ownership from any other named entity. SWBC Investment Services, LLC a division of SWBC, is a nationwide partnership of advisor.

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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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