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
Stocks did the nearly unthinkable by falling for the second straight week! The drumbeat for weaker corporate earnings and deteriorating technicals got a bit louder as the week progressed. High yield and investment-grade corporates held in despite another deluge of supply. Treasury yield volatility picked up a bit in the longer-end of the curve, despite the rather tight trading range we find ourselves in. Economic news was fairly benign. CPI came in as expected, while retail sales for August came in a bit stronger than expected. Overall, last week felt a bit illiquid and more than a bit cautious. The easy valuation calls seem to be over and many believe much of the gains to be had from monetary and fiscal love have already occurred.
- The S&P 500 retreated 2.57%. The average daily move was 0.54%.
- The NASDAQ fell .47%. The average daily move for the week was 0.48%.
- The two-year Treasury yield rose one basis point for the week closing .22% on Friday. Year-to-date high yield .27%, low yield .10%.
- The 10-year Treasury yield increased four basis points for the week, closing at 1.36% Friday. Year-to-date high yield 1.74%, low yield .91%.
- The VIX Index was nearly unchanged for the week, closing at 20.81 Friday. Year-to-date high 37.21 and low 15.07.
- The MOVE rose 8% for the week, closing at 56.06 on Friday. Year-to-date high 75.66, and low 42.53.
- Five-year Investment Grade Corporates (as measured by Markit CDX) were unchanged for the week closing at 47 basis points Friday. High spread year-to-date 58.07 and low of 46.56.
- High Yield corporate debt (as measured by Markit CDX) was unchanged for the week, closing at 277 basis points on Friday. High spread year-to-date 319, low 269.
- U.S. Dollar Index strengthened 0.7% for the week, closing at 93.195 on Friday. High reading year-to-date 93.57, low 89.44.
- WTI Crude advanced 3.4% for the week using the November WTI Futures contract, closing at 71.82 Friday. High price for the front contract year-to-date 75.25, low 47.62
- Gold, as measured by the December 2021 futures contract declined 2.3% for the week closing at 1,751 on Friday. High price for the front contract year-to-date 1,954, low 1,678
- Bitcoin fell 4.2% for the week, closing at 46,990 Friday. High price year-to-date 63,410, low 29,865.
The Week Ahead
We come in this morning with global equities down sharply and Treasury yields lower as they catch a flight to quality bid. Over the weekend, the question, “What is Evergrande?” was answered. It is a gargantuan real estate mess in China where the bottom is unknown. While contagion risk is probably overstated, it is a big deal that will certainly affect China’s shiny new middle-classers. Anything that negatively impacts some 300 million consumers is important. Many have put down their life savings on their first-time dream homes and are now facing the very real possibility of a complete wipeout. One thing to note, however, is President Xi does not need to go to congress to get a massive bailout package, so perhaps this won’t end up as bad as it seems? Maybe.
This week, we have the Fed FOMC meeting with the statement and presser on Wednesday.
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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