Major market indices were down across the board last week with the Nasdaq 100 fairing worst, down nearly 3%.
In the meantime, despite the Fed raising short-term lending rates and announcing a target of over 5% for 2023, bonds rallied and yields fell. Rates on the benchmark 10-year note closed Friday at just over 3.48%, that is down from the prior week’s close of nearly 3.58%.
The discrepancy in the bond market versus the Fed is interesting as it essentially suggests the market doesn’t believe the Fed, or at a minimum feels the Fed will backtrack on their target rates. Because of that, I believe we could see continued volatility around the announcement of any economic data, such as this week’s Core Personal Consumption Expenditures due out Friday.
Last Friday was a quadruple witching and while markets were down, one interesting note was that we saw volatility contract. Normally, equity prices and volatility are inversely correlated and therefore, when stock prices move lower, theoretically, volatility increases. However, despite stocks being down on Friday, VIX actually dropped slightly.
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