The Week that Was: November 1 to November 5

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

Last week (November 1 – November 5), U.S. equities were in vogue, with particular emphasis on the Russell 2000 Index. A combination of a dovish Federal Reserve, robust earnings results and relatively strong economic data provided the necessary tailwinds. The Federal Reserve announced its intent to begin tapering. The Fed will slow monthly asset purchases in November and December by $15 billion per month (the current total is $120 billion per month). The Fed reiterated its belief that inflation numbers will moderate and emphasized its commitment to a stronger labor market. Based on Fed Fund futures, expectations for rate hikes in 2022 declined following Federal Reserve Char Jerome Powell’s statement about the Fed’s plans. The market moved from pricing 2.5 hikes next year to less than 2. In 2013, bond yields (U.S.) rose in anticipation of the Fed tapering but fell following its announcement. During that 10 month taper, the S&P 500 Index gained 9.5%.

The monthly jobs data released last week was strong. The U.S. economy added 531,000 new jobs in September, despite a continued slowdown in government hires. The numbers for August and September were boosted by a total of 235,000 and the unemployment rate fell to 4.6%. This season’s quarterly earnings trend continues, with the punishment for companies that miss expectations far outweighing the gains for those that beat expectations. In terms of sector performance, the Consumer Discretionary and Technology sectors led the S&P 500 Index higher, gaining 5.4% and 3.35%, respectively. The Financials and Health Care sectors lagged. Over the past 30 years, November and December have been two of the strongest months for the S&P 500 Index. On average, the market has added 2.1% in November and 1.6% in December.

Quick Bites

Indices

• U.S. Equity Indices started the month on strong footing.
• S&P 500 Index (SPX^®): Increased 2.0% week-over-week.
• Nasdaq 100 Index (NDX): Increased 3.2% week-over-week. 
• Russell 2000 Index (RUT℠): Established new all-time highs to reach its best week in eight months.
• Cboe Volatility Index™ (VIX™ Index): Measured between 17.70 and 14.73 last week.

Options

• SPX options average daily volume (ADV) was about 1.6 million contracts per day, slightly above the previous week’s average of 1.38 million contracts per day. The one-week at-the-money (ATM) SPX options straddle (4695 strike with an 11/12 expiration) implies a +/- range of about 1.1%. The weekly ATM straddle settled on an 11.9% implied volatility.
• VIX options ADV was about 380,000 contracts last week, which was above the previous week’s ADV of 300,000 contracts. The VIX options call-put ratio was 1.06:1.
• RUT options ADV was 91,200 contracts, which was more than double the previous week’s ADV of 42,700.

Across the Pond

• The Euro STOXX 50 Index increased 2.4% on the week.
• The MSCI EAFE Index (MXEA℠) increased 1.7% week-over-week and the MSCI Emerging Markets Index (MXEF℠) was unchanged week-over-week.  

Charting It Out

Observations on VIX futures term structure

• The VIX Index moved incrementally higher for the second straight week. VIX futures contracts inched lower down the curve but the shape of the curve was essentially unchanged. 
• The November/December VIX futures spread narrowed by 0.10 on the week and settled at 2.15 wide. The November VIX futures fell by 0.45 and the December VIX futures declined by 0.55.

VIX Futures Term Structure

Source: LiveVol Pro

Macro Movers

• The U.S. 10-year Treasury Yield declined last week following the latest Federal Open Market Committee (FOMC) meeting. Relative to the previous Friday, the yield fell by 11 basis points and closed at 1.45%. The 10-year yield has fallen by 24 basis points since October 22.
• The S&P GCSI lost 7.6% week-over-week. Crude Oil (WTI) lost 2.6% and the Grain Complex declined as well. Chicago Wheat was down 0.65%, Corn lost 2.7% and Soybeans fell by 3.6%, week-over-week.
• Big Tech was higher across the board last week. Tesla has gained 80% since the week ending August 20 and has a market cap of $1.2 trillion. $1,000 invested in Tesla in November 2011 would be worth about $205,000 today.
• Facebook reversed its seven-week slide lower last week.
• Amazon closed at the highest levels since late July, despite the previous week’s earnings disappointment. 2.2 million Amazon options traded last week,  the highest volume since early July.

Major Cryptos

Bitcoin

• Bitcoin (BTC) traded up to $64,000 on Monday. By Friday afternoon BTC (spot market) was trading around $61,100, falling 2.14% on a week-over-week basis.
• BTC makes up 42.8% of crypto’s total market cap.

Ethereum

• Ethereum (ETH) traded between $4,570 and $4,460 last week. On November 5, ETH was trading at $4,500, up 1.93% week-over-week.
• ETH makes up 19.7% of crypto’s total market cap.

Digital Asset Industry

• New York City’s newly elected mayor, Eric Adams said he will take his first three paychecks in BTC to make the city attractive for digital asset businesses.
• On Wednesday, the total market cap for the digital asset market reached new highs of about $2.8 trillion.
• Digital asset bulls point to the forthcoming launch of Ethereum 2.0 and the prospect of an ETH futures-based ETF as potential upside catalysts for the asset class.

Coronavirus

• The 7-day average COVID-19 infection rate in the U.S. was flat last week. The rate remains around 72,000 new cases per day. 
• 58% of the U.S. population is fully vaccinated against COVID-19 and 67% has received at least one dose of a COVID-19 vaccine. For just those 12 years and older, the numbers are 68% and 78% respectively.
• The FDA and CDC have approved Pfizer’s vaccine for children between the ages of 5 and 11. Distribution will scale up to full capacity starting Monday, November 8, according to the CDC.
• Globally, the 7-day average caseload is also flat. India reported its lowest case numbers in nine months. Eastern Europe is home to half of the new confirmed cases.  

COVID-19 Cases in the U.S.

Source: The New York Times

Tidbits from the News

• The U.S. labor market continues to heal following the historic decline in jobs in early 2020. Friday’s Nonfarm Payroll data showed 531,000 jobs were added in September. There are now approximately 148.3 million Americans working, compared to approximately 152.5 million at the job market’s height in February 2020. So, despite significant progress, the U.S. labor market remains 4 million jobs shy of its best levels. 

Number of U.S. Workers in the Economy

Source: St. Louis Federal Reserve

• Emerging Market Index performance has significantly lagged S&P 500 Index performance for a decade. The visual below divides the MXEF Index (price level) by the S&P 500 Index. The ratio is at its lowest level in nearly 20 years. The MXEF Index has approximately 33% exposure to China, approximately 15% exposure to Taiwan and approximately 12.5% exposure to South Korea and India. It also has relatively small exposure to Brazil, Russia, Saudi Arabia, Mexico and Thailand.

Emerging Market Index Performance

Source: The Daily Shot

• The Baltic Dry Index (BDI) has declined by approximately 40% over the past five weeks. The BDI tracks the cost of transporting raw materials and is a composite of different vessel sizes for dry bulk carriers. The index, which has experienced periodic bouts of volatility due to a short supply of large vessels, is considered by some to be a leading indicator for manufacturing activity. 

Baltic Dry Index Performance

Source: Trading View

The Week Ahead

• Data to be released this week: Weekly Jobless Claims, Consumer Price Index (CPI) and Federal Budget on Wednesday; Job Openings, University of Michigan Consumer Sentiment Index and Five-year Inflation Expectations on Friday.

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