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Market Commentary: Week of October 5, 2020

Last week:

It was another Teflon-like week for equities and corporate debt. The S&P and NASDAQ managed to score over one percent gains in a week where we saw mass layoffs from multiple industries; no progress on a stimulus/relief package; disappointing employment numbers that showed the effects of COVID-19 beginning to push the economy back down; a Presidential debate that embarrassed nearly the entire country; and finally, on Friday, we awoke to the news that The President of the United States—along with senior advisors and Congressional leaders—came down with COVID-19, with the President having to go to the hospital. We understand that the stock market is not the economy, but this is getting ridiculous! We believe, while there are very good reasons for some of the mega-cap company stocks to have performed so well since the crash in March, nevertheless, with the Fed conducting the most accommodative monetary policy in its history—unless investors feel the world is going to end again—capital flows away from near-zero rate low risk assets (where the Fed is directly involved with its $6.6 trillion balance sheet) and into risk. Sometimes it is that simple.

  • The S&P 500 increased 1.52% for the week. The average daily move for the week was .88%.

  • The NASDAQ increased 1.48% for the week. The average daily move for the week was 1.31%.

  • The two-year Treasury was unchanged on the week, closing at .13% Friday.

  • The 10-year Treasury increased four basis points for the week, closing at .70% Friday.

  • The VIX Index increased 4.7% for the week closing at 27.63 Friday.

  • The MOVE Index increased 8.1%, closing at 39.97 Friday.

  • Five-year Investment Grade Corporates (as measured by Markit CDX) tightened 1 basis point for the week, closing at 60 basis points on Friday. High-yield corporate debt (as measured by Markit CDX) widened five basis points, closing at 404 basis points on Friday.

  • U.S. Dollar Index declined 0.8%, closing at 93.83 on Friday.

  • WTI Crude decreased eight percent this week, using the November WTI Futures contract, closing at 37.20.

  • Gold, as measured by the December 2020 futures contract, gained 2.2% and closed at 1,907 on Friday.

The week ahead:

We start the week with global stocks rising again. The weekend was bizarre, with President Trump in the hospital, his doctors saying on Saturday that he’s just having mild symptoms, while Chief of Staff Meadows was telling reporters that the President’s condition is very serious and he had a very rough couple of days. On Sunday, the President’s doctors essentially apologized for “trying to create a positive atmosphere” and essentially said they were fibbing Saturday. We imagine the entire week will revolve around how the President is doing. We have less than 30 days to the Presidential election, so we imagine reports out of Walter Reed will be positive. This will be the overriding variable for the markets, with the potential of a relief bill success. The House wants it, The White House wants it, but the Senate Majority Leader does not. Perhaps the President will finally use the immense power he has in his own party to get the Senate in line. Let’s hope. The economic calendar is fairly light this week. We get the latest FOMC meeting minutes on Wednesday, and as always, the Jobless Claims on Thursday.

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.

© 2020 SWBC. All rights reserved. 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.

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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