As we have been saying for several of our previous quarterly economic updates, as inflation goes, so goes the U.S. economy. A quick and rapid descent of inflation will take pressure off the Fed to con...
Capital Markets
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4 min read
Last Week
It was quite an ugly week for just about everything but oil and bitcoin. Stocks were down sharply, giving their worst monthly performance since March 2020. High-Yield corporate debt showed some signs of weakening as well. It feels like the world is waking up to the real possibilities of stagflation. Energy crises in the United Kingdom and Europe are intensifying with shortages of natural gas and other fuels. Additionally, China seems to be a bit short of coal. Investors got little, if any, relief in credit risk-free assets as 10-year Treasury yields broke toward the mid-1.50s before backing off. This spooked stocks, especially tech, as the tech-heavy NASDAQ dropped over 3%.
- The S&P 500 declined 2.2%. The average daily move was 0.96%.
- The NASDAQ fell sharply by 3.2%. The average daily move for the week was 0.97%.
- The two-year Treasury yield was unchanged for the week, closing at .27% on Friday. Year-to-date high yield .27%, low yield .10%.
- The 10-year Treasury yield increased 1 basis point for the week, closing at 1.46% Friday. Year-to-date high yield 1.74%, low yield .91%.
- The VIX Index rose 19% for the week, closing at 21.15 Friday. Year-to-date high 37.21 and low 15.07.
- The MOVE was nearly unchanged for the week, closing at 57.38 on Friday. Year-to-date high 75.66, and low 42.53.
- Five-year Investment Grade Corporates (as measured by Markit CDX) widened one basis point 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) widened 23 basis points, closing at 298 basis points on Friday. High spread year-to-date 319, low 269.
- U.S. Dollar Index strengthened 0.76% for the week, closing at 93.327 on Friday. On Wednesday, the index hit its high of the year. High reading Year-to-date 94.34, low 89.44.
- WTI Crude advanced 2.6% for the week using the November WTI Futures contract, closing at 75.88 Friday. Friday’s level represents the new high of the year. High price for the front contract year-to-date 75.88, low 47.62.
- Gold, as measured by the December 2021 futures contract, was unchanged for the week closing at 1,758 on Friday. High price for the front contract year-to-date 1,954, low 1,678.
- Bitcoin rose 12% for the week, closing at 48,133 Friday. High price year-to-date 63,410, low 29,865.
The Week Ahead
We come in this morning with U.S. equities down, while Europe is off a bit and Asia down pretty sharply overnight. Meanwhile, Treasury yields are up with the yield curve continuing to steepen. Energy commodities continue their march higher as many parts of the world economy have begun to experience painful and dangerous shortages. The big news this week will be the September employment report on Friday. Unlike the last few reports where risk to stocks and Treasuries would come in the form of an upside surprise, this report may have investors hoping for a more hopeful number.
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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