The Week that Was: March 7 to March 11

A concise weekly overview of the U.S. equities and derivatives markets

Last week (March 7 – March 11), the conflict in the Ukraine remained center stage and U.S. equities retreated. Pre-existing inflation concerns have been exacerbated by Russia’s invasion of Ukraine. Energy prices made new highs early in the week following news that the U.S. would halt Russian imports. The Consumer Price Index (CPI) data showed inflation at 40-year highs as food prices are escalating at the quickest rate ever.

The University of Michigan consumer sentiment data released on Friday, March 11, fell to 59.7, compared to expectations of 61.4. The reading is down from 62.8 and is the lowest reading since November 2011 following food inflation (Arab Spring), Euro sovereign debt crisis and U.S. debt downgrade. The all-time lows occurred in late 2009, with a reading of approximately 56. A year ago, the reading was 84.9.

The U.S. 10Y-2Y spread traded at the narrowest levels since March 2020. European credit markets show growing signs of concern with high-yield spreads widening much more than in U.S. high-yield markets.

Early last week, the Nasdaq 100 Index fell 22% from highs. By comparison, the S&P 500 Index was off 14% on lows. Over the past month, the S&P 500 Index has lost 5.66%. In terms of sector performance over the same timeframe, Energy leads, up 13.45%, followed by Utilities, up 3.27%. Financials are the laggard, down 10.10%, followed by Consumer Discretionary, down 8.9%, and Technology, down 8.63%.

This week, markets will continue to key in on geopolitics, as well as the Fed’s language following the March Federal Open Market Committee (FOMC) meeting. Fed Fund futures have a 25-basis point hike entirely baked in. The pace of future hikes may illuminate the path ahead regarding monetary policy.

Quick Bites

Indices

• U.S. Equity Indices all closed lower last week as financial conditions tighten.
• S&P 500 Index (SPX®): Decreased 2.84% week-over-week after moving in a 3.9% range relative to the March 4 close.
• Nasdaq 100 Index (NDX): Decreased 3.78% week-over-week.
• Russell 2000 Index (RUT℠): Decreased 0.94% week-over-week.
• Cboe Volatility Index™ (VIX™ Index): Decreased 1.23 vols week-over-week. The VIX Index closed at the highest level since late January 2021 on Monday, then moved lower throughout the week.

Options

• SPX options average daily volume (ADV) was 1.62 million contracts per day. The one-week at-the-money (ATM) SPX options straddle (4,385 strike with a 3/18 expiration) implies a +/- range of about 3.1%.
• VIX options ADV was about 560,000 contracts last week, in-line with the previous week’s ADV. The VIX options call-put ratio was 1.23:1.
• RUT options ADV was 36,600 contracts, in-line with the previous week’s ADV.

Across the Pond

• The Euro STOXX 50 Index increased 1.64%.
• The MSCI EAFE Index (MXEA℠) was unchanged week-over-week and the MSCI Emerging Markets Index (MXEF℠) decreased 5.06% week-over-week.

Charting It Out

• The VIX Index ranged between 37.52 and 28.84 last week.
• The VIX Index established new closing highs on Monday and then declined throughout the week, ending the week down 1.23, relative to the previous Friday.
• The VIX futures curve flattened demonstrably. The March VIX futures fell, but the middle and back of the curve popped.
• The VIX futures term structure has been backwardated since February 14. The March/April VIX futures spread closed at 0.15 wide with March over. On March 4, that spread settled at 1.30 wide, so the inversion decreased by 1.15 for the week. March VIX futures declined by 0.90 and April climbed by 0.25 week-over-week.
• The standard March VIX futures and options will expire on Tuesday, March 15. 

VIX Futures Term Structure

Source: LiveVol Pro

Macro Movers

• The 30-year U.S. Treasury yield closed at 2.35%, up 18 basis point week-over-week. The 10-year U.S. Treasury yield moved higher throughout the week. Monday’s lows were 1.72% and late week highs were 2.02%. The 10-year U.S. Treasury yield closed at 2.0%, up 28 basis points week-over-week. The 2-year U.S. Treasury yield climbed to 1.75%, up 25 basis points. That’s the highest 2-year yield since September 2019.
• The S&P GSCI fell 6.37% for the week. WTI and Brent Crude Oil came off recent highs on news OPEC may boost production. WTI ended the week down about $6 per barrel. Gasoline and heating oil futures pulled back even more than Crude due to weaker crack spreads.
• Gold traded to the highest levels ever, reaching $2,078 early in the week before moving below $2,000 to end the week. In London trading, Nickel futures jumped 73% on Monday and 100% on Tuesday before trading was halted. Nickel has yet to reopen.
• The overall strength in commodities has run in tandem with a stronger U.S. dollar. The Dollar Index (DXY) is nearing the highest level in years and is at the higher end of its multi-decade range.
• It was a down week for Big Tech, as well as the broader indices. Amazon led the pack despite closing fractionally lower. Meta’s swoon continues, falling approximately 6% last week.
• Russia blocked Facebook and called it an “extremist” organization. Russians will likely lose access to all Meta-owned platforms, including Instagram and WhatsApp.
• Amazon announced plans for a 20-for-1 stock split. It’s the company’s first split since 1999. Amazon stock jumped 5% following the announcement, which included a $10 billion buyback plan.
• Alphabet announced its intent to acquire Mandiant last week for $5.4 billion. Mandiant is a cyber-security firm focused on state-sponsored hacking. It’s Alphabet’s largest deal since 2011.

Major Cryptos

Bitcoin

• Last week Bitcoin (BTC) traded between $42,600 and $37,100. BTC was trading around $39,000 on March 11, down 1% relative to the previous Friday.
• BTC has been trading right around $40,000 for the past three Fridays. BTC’s 30-day realized volatility is at the lower end of its typical range.

Ethereum

• Ethereum (ETH) ranged between $2,800 and $2,450 last week. ETH ended the week at $2,550. ETH declined by 1.8% week-over-week.

Coronavirus

• COVID-19 infections in the U.S. continue to decline nationwide. The 7-day average moved to approximately 35,800 on March 11, down from approximately 51,600 cases per day the week prior.
• 65% of the U.S. population is fully vaccinated against COVID-19 and 77% have received at least one dose of a COVID-19 vaccine. For just those 5 years and older, the numbers are 69% and 81% respectively.
• COVID-19 hospitalizations are down more than 75% since January. Even more encouraging, the number of Intensive Care Unit (ICU) inpatients has plummeted.
• Globally, infection averages ticked slightly higher. Hong Kong remains a hotbed and illnesses in New Zealand have increased dramatically.

COVID-19 Cases in the U.S.

Source: The New York Times

Tidbits from the News

• The S&P 500 Index has been volatile of late, but how does that volatility compare to other periods over the past two decades? Like so many volatile periods – it’s unusual, but not unprecedented. Friday, March 11, marked 40 straight sessions with intraday swings of 1% or more. Mid-January was the last session with daily vacillations below 1%. During the early stages of the pandemic, there were 64 straight 1% daily moves. During the global financial crisis in 2008, there was a stretch of 125 straight sessions with 1% swings.

S&P 500 Index Volatility Since 2000

Source: S&P Dow Jones Research

• As of late last week, 26% of the S&P 500 Index constituents were higher year-to-date and 74% were in the red. In terms of sector-specific performance, Energy is the only positive group. Utilities have moved back toward breakeven, with Technology and Consumer Discretionary pulling up the rear. A variety of well-known large cap names are down 40% or more, including Netflix, Meta, Moderna and PayPal.

S&P 500 Index Year-to-Date Constituent Performance

Source: ChartR & Koyfin

• A variety of western companies have voiced their intent to stop or seriously curtail their business in Russia. Last week, JP Morgan and Goldman Sachs announced they were pulling out of the country. McDonald’s is closing approximately 850 restaurants and Coca-Cola suspended its operations in Russia. The visual below shows the total market cap for some major firms that have (blue) and have not (red) left the Russian market. The economic implications for Russia have been swift and severe.

Publicly Traded Companies that Have Curtailed Operations in Russia

Sources: Yale University and The Economist

The Week Ahead

• Data to be released this week: Producer Price Index (PPI) on Tuesday; Retail Sales, National Association of Home Builders (NAHB) Home Builders Index, Federal Open Market Committee (FOMC) Press Conference on Wednesday; Initial Jobless Claims, Housing Starts and Philly Fed on Thursday; Existing Home Sales, Leading Economic Indicators on Friday.

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