Market Synopsis: Equities up, Treasury Yields down, Commodities mixed, Dollar down, Crypto down
Past Week Event(s):
- Wednesday was most definitely the busiest day for markets especially with the release of the FOMC minutes. The FOMC or the Federal Open Market Committee which regulates financial markets has regularly scheduled meetings; however, what transpires in those meetings is not released until later. The minutes were split between hawkish and dovish sentiment but it seemed to lean towards the doves judging by the market's reaction. The key takeaway was the rapid increase of rates we’ve seen recently may slow but these elevated levels may be around to stay.
Next Week (November 21):
- The month of October’s Unemployment rate is released which reports the amount of Americans who are not currently working. Last month's rate was 3.7%, which is 0.2% higher than September’s. This can be viewed as a positive growth for investors, because although Americans generally want to see this as a low number, the Federal’s Reserve's attempts to cool inflation by hiking interest rates is a direct cause of this, so furthermore their attempts to cool inflation seem to be working. Last month’s CPI report can be paired with last month’s unemployment rate as evidence that the Federal Reserve hiking rates is reducing inflation. This report for November will be of upmost importance to see how inflation and the Fed’s attempts to cool it continue.
- The Consumer Confidence Index for November will be released. This data point is a good indication on how consumers feel about how the economy is holding up and their personal financial situation. This is an extremely valuable piece of information regarding how inflation continues to affect the market.
Market Snapshot:
- This week was rather quiet in terms of low liquidity and a lack of major moves in the major indices. This was expected as the holiday week is usually slow. However, the release of the FOMC minutes prompted a run up in markets. The dovish sentiment highlighted by a slowing of the pace of rate increases pushed treasury yields, the dollar lower, bond prices higher, and stocks higher. Crypto had a quiet week moving very little, relatively speaking. Also, it is important to note that the Federal Reserve’s balance sheet contracted on a year-over-year basis last week for the first time since Dec 2019. This is a good start but expect much more tightening to come.
U.S Equities:
Indexes(Week)
SPX 4,026.12(2.02%), DJIA 34,347.03(2.39%),
NASDAQ 11,226.36(0.73%), RUT 1,869.19(1.63%)
Sectors
- All sectors were green this week; however, utilities and materials were the leaders this week each gaining over 3 percent. On the other hand, Communication and Consumer discretionary lagged behind only gaining slightly above half a percent.
Individual ETF to Note
- TLTW is an interesting ETF which seems to provide both income and stability. Its highly attractive dividend yield around 20 percent makes it difficult to ignore, however, that yield doesn’t come free. The ETF is able to pay such a high dividend through its buywrite strategy which consists of selling covered calls on the underlying ETF TLT. This may seem confusing but put simply the upside potential is capped for the higher yield. This ETF is one that should be further examined by investors looking to diversify into high yielding ETFs.
Treasuries:
- Treasuries had a shortened week because of the Thanksgiving holiday on Thursday. Yields ended lower on the week because of the dovish sentiment in the FOMC minutes. A potential slow down in the raising of interest rates pushed yields lower on the week.
Commodities:
Oil
- Oil had a bumpy week with several catalysts sending it flying all over the place. A potential Russian price cap and high number of cases in China(Concerns of another lockdown) sent Oil lower on the week.
Gold
- Gold finished with a slight gain which was in part due to the FOMC minutes.
BTC -16,505, -0.82% ETH - 1,199.60, -0.76%
- This week was very quiet, especially for crypto markets. No major news or catalyst came about to stir markets.
- A few interesting points did happen though. Harvard university is now recommending that central banks purchase Bitcoin. Many were angered by a headline that Sam Bankman Fried(founder of FTX), was going to speak alongside Vladimir Zelensky and Jannet Yellen.
Europe:
Stoxx 600- 440.73, 1.71% DAX -14,541, 0.76% FTSE 100 -7,486, 1.37%
- Chart of the DAX (5-day)
- Expectations of a recession in Europe have been eased because of calmer Federal Reserve hikes and relaxed economic data points released across the week (highlighted by Germany’s economy growing in the third quarter). This gave traders a euphoria that allowed the Stoxx 600 to end up 1.71% on the week and pass a 3-month high.
- A cost-of-living crisis continues in Europe and is not getting better as the World Cup starts. Consumers are facing high inflation and overall confidence is very low highlighted by the retail index falling 0.6% on Black Friday, and the World Cup just serves as a distraction to this.
Asia:
XJO (Australia)-7,151, -0.09% Shanghai 180 Index-8,081, 0.55% Nikkei 225- 27,970, -0.18%
- XJO 5-day Chart
- Tokyo’s core inflation rates are seeking their highest levels in 40-years. As of late Japan’s inflation crisis continues to grow, and it is yet to be controlled considering their ultra-loose monetary policy.
- Putin has approved a reconstruction of the Russian tech powerhouse Yandex. This plan to restructure the company is aimed at moving the company away from the offshoot of the Ukraine War.
Sources Cited
Cox, Jeff. “Fed Officials See Smaller Rate Hikes Coming ‘soon,’ Minutes Show.” CNBC, 23 Nov. 2022, www.cnbc.com/2022/11/23/fed-minutes-november-2022.html.
“Home Page - MarketWatch.” MarketWatch, 25 Nov. 2022, www.marketwatch.com.
“Howls of Outrage After New York Times Confirms SBF to Speak Alongside Zelenskyy, Yellen | ZeroHedge.” Howls of Outrage After New York Times Confirms SBF to Speak Alongside Zelenskyy, Yellen | ZeroHedge, www.zerohedge.com/markets/howls-outrage-after-new-york-times-confirms-sbf-speak-alongside-zelenskyy-yellen-dealbook. Accessed 25 Nov. 2022.
TheJihyeLee. (2022, November 25). Asia-Pacific stocks mostly lower, Tokyo inflation at highest in 40 years; U.S. markets closed. CNBC. Retrieved November 25, 2022, from https://www.cnbc.com/2022/11/25/asia-markets-us-markets-thanksgiving.html
Comments