HIGHLIGHTS
Market volatility was high due to concerns around potential recession. VIX hit 65 and dropped back to 21 at the end of the week. US equities experienced a V-shaped rebound this week and ended up only down slightly.
Japan: Nikkei dropped significantly at the beginning of the week. Governor from the Bank of Japan's comments of not hiking rates further during the volatile periods have relieved the markets. Nikkei recovered most of the losses by the end of the week. Japanese yen also stabilized.
Yield: US treasury yields dropped as market participants looked for safety. 2Y fell more than 20bps and reached 3.88%. 30Y fixed mortgage rates dropped by around 25bps as rate cut cycle approaches, it should increase home affordability and boost purchases.
Oil: Oil prices were down on Monday due to economic concerns, while it performed strongly later in the week. The strong rebound is mainly driven by geopolitical tensions and OPEC production cuts. It is likely to put a floor under oil prices.
MARKETS
16,745.30 | -0.18% | |
S&P 500 | 5,344.16 | -0.04% |
Dow | 39,497.54 | -0.60% |
10-Year | 3.94% | +15bps |
Brent | 79.74 | +2.97% |
DXY | 103.15 | -0.07% |
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Equity
Morgan Stanley: The rotation from large caps to small caps has been correlated with the 2Y treasury yields. However, this may not be the case recently. The tremendous move in rates may have bonds overbought. Also, chasing small caps as recession odds are rising is not recommended.
UBS: Tech selloff could be an opportunity to build quality tech exposure. We believe tech fundamentals remain solid while valuations have reset lower now.
Fixed Income
Standard Chartered: After the shakeout, we recommend moving to quality bonds as markets consolidate. Yields around 4% still offer an opportunity to lock in the yields from high-quality bonds for longer periods. Rate cuts that support growth are also favorable to bonds.
Morgan Stanley: Duration is likely overbought and could be vulnerable. Investors are recommended to maintain overweight in fixed income but underweight benchmark duration. Long-duration backup is possible.
Economy
UBS: Markets are concerned that the Fed has put the economy at risk of a contraction by waiting too long to cut rate. The latest jobless claims data supported the view that recent pessimism may have been overdone.
Goldman Sachs: Fed shifted its focus from hitting its inflation target to avoiding recession. They are monitoring the labor market closely and trying to avoid a surge in unemployment. Markets are pricing 100bps cut by year-end and higher likelihood of 50bps cut at September’s meeting.
KNOWLEDGE TRANSFER
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DISCLOSURE
This newsletter is meant for informational purposes only and is not investment advice. Always consult a licensed investment professional before making important investment decisions. Advertising and sponsorship do not influence editorial content or decisions. Market Hedwig is not responsible for the promises made or the quality or reliability of the products or services offered in any advertisement.
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