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U.S. Equities Market Attributes June 2023

iBoxx Asian Local Currency Indices Monthly Commentary: May 2023

iBoxx USD Asia Ex-Japan Monthly Commentary: May 2023

U.S. Equities Market Attributes May 2023

iBoxx USD Asia Ex-Japan Monthly Commentary: April 2023

U.S. Equities Market Attributes June 2023

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

KEY HIGHLIGHTS

MARKET SNAPSHOT

S&P 500 breadth turned strongly positive in June, as 454 issues were up (with 155 up at least 10%), compared with May’s 124 gainers, which has turned the YTD breadth positive, with 300 up (116 up at least 20%), as all 11 sectors were positive for the month.  For June, the S&P 500 total return was up 6.61%, with broad contributions across issues, compared to previous months when high-market-value issues dominated the market; underlying breadth (and contributions) remained negative.  That dominance still exists, as the index’s total return was up 16.89% YTD, but without the top 44 issues, the index would be negative YTD, though that 44 was 8 in May.  Apple (AAPL) and Tesla (TSLA) were still on top for the month, with Alphabet (GOOG/L) (then Salesforce [CRM]) the largest negative contributor for the month. 

Meanwhile, the positive contributions were broad for June, even though they remain highly concentrated YTD.  The index is still top heavy, with the top 10 issues accounting for 30.5% of the market value below 20% is more typical).  Of note to the top of the market, semiconductor issue NVIDIA (NVDA) joined the USD 1 trillion in market value club this month, as Apple (which set a record at 7.72% of the index) became the first public issue to trade above USD 3 trillion in market value; the other three members of the club are Microsoft (MSFT), Alphabet and Amazon (AMZN).

The IPO market came back to life (with mixed performance) as Mediterranean restaurant CAVA (CAVA) broke the drought; offered at USD 22, opened at USD 45, reached USD 47 and closed the month at USD 40.95.  Korean BBQ group GEN Restaurant (GENK) followed with an IPO at USD 12 and closed the month at USD 16.99.  Also completing their IPOs were Vesta Real Estate (VESTA), which develops and manages industrial properties in Mexico; Kodiak Gas Services (KGS), a natural gas compression company in Texas; Savers Value Village (SVV), a for-profit thrift store operator; and Fidelis (FIHL), a specialty insurer and reinsurer.  July typically is busy for IPOs, and this recent run gives hope for this year (there are typically few IPOs in August).

The U.S. Federal Reserve released its annual banking stress test, which emulated a 10% unemployment rate, a 40% decline in commercial real estate, a 38% decline for house prices and 4.5% minimum capital ratio for 23 big banks (minimum of USD 250 billion in assets: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, among others).  The Fed reported all 23 banks had sufficient funds to operate under a severe recession scenario.  Of note, the assumed USD 541 billion in potential losses was the USD 100 billion for commercial and residential real estate losses, compared to USD 120 billion for credit cards, implying greater credit exposure.  Also in the notes, the Fed estimated that the 23 banks hold 20% of downtown commercial real estate loans held by banks—which means 80% are held by mid-size and small banks, which were not tested and do not have the same global resources (or “too big to fail” classification).  Tests for mid-size banks of USD 100 billion-USD 250 billion are conducted in alternating years, and this was not one of them, as the current regulatory review is expected to change the review to every year.

As for July, the headliner is expected to be the Fed, as the FOMC is expected to increase interest rates by another 0.25% on July 26, with the market baking in an 84% chance.  The market appears to have accepted another 0.25% after that, but not until either the September 20 or November 1 announcement dates; the first cut now appears to be in Q2 2024, at the May 1 meeting.

iBoxx Asian Local Currency Indices Monthly Commentary: May 2023

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Kangwei Yang

Director, Fixed Income Indices

S&P Dow Jones Indices

Monthly performance, maturity, yield and duration of the iBoxx ALBI, iBoxx ABF and iBoxx SGD Indices.

Among the headlines in May was the U.S. debt ceiling and what it meant if no agreement was struck in Congress ahead of the June 5 deadline.  The impact of a default on U.S. government debt would likely be unthinkable, possibly resulting in turmoil in financial markets and significant job losses across markets. On June 3, U.S. President Biden signed a bill that would suspend the debt ceiling to avert a default.

Meanwhile, the FOMC will meet again on June 13 and 14 to discuss the next move on the federal funds rate.  Expectations from market analysts were mixed.  After the FOMC meeting in May, the consensus was that we may have witnessed the final rate hike.  However, strong employment data, persistent core inflation and general resilience in the economy may have altered some analyst expectations.

In May, the S&P 500® ended the month relatively flat, with a return of 0.25% after recovering from losses earlier in the month.  At the same time, U.S. Treasuries, as represented by the iBoxx $ Treasuries, lost 1.25%.

iBoxx Asian Local Currency Indices: Monthly Commentary: Exhibit 1

The iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) returned -1.30% in May, with mixed performance from the underlying markets.

Among the top gainers (in local currency terms) were Indonesia (up 1.82%), India (up 1.35%) and the Philippines (up 1.13%).  South Korea (down 1.35%) and Hong Kong (down 0.68%) were the worst performers this month, as FX gains against the dollar were outweighed by capital losses.

The largest gains and losses were concentrated in the long end of the curve.  This month, the Philippines 10+ and Indonesia 10+ posted the highest returns, at 2.50% and 2.33%, respectively, while South Korea 10+ (down 3.22%) and Hong Kong 10+ (down 2.36%) recorded the largest declines.

As of the end of May, the overall index yield was unchanged at 3.92%.  India remained the highest yielding bond market in the index, offering 7.09%, while China Onshore (2.81%) replaced Thailand as the lowest yielding market.

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iBoxx USD Asia Ex-Japan Monthly Commentary: May 2023

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Kangwei Yang

Director, Fixed Income Indices

S&P Dow Jones Indices

May 2023 Commentary

Among the headlines in May was the U.S. debt ceiling and what it meant if no agreement was struck in Congress ahead of the June 5 deadline.  The impact of a default on U.S. government debt would likely be unthinkable, possibly resulting in turmoil in financial markets and significant job losses across markets.  On June 3, U.S. President Biden signed a bill that would suspend the debt ceiling to avert a default.

Meanwhile, the FOMC will meet again on June 13 and 14 to discuss the next move on the federal funds rate.  Expectations from market analysts were mixed.  After the FOMC meeting in May, the consensus was that we may have witnessed the final rate hike.  However, strong employment data, persistent core inflation and general resilience in the economy may have altered some analyst expectations.

In May, the S&P 500® ended the month relatively flat, with a return of 0.25% after recovering from losses earlier in the month.  At the same time, U.S. Treasuries, as represented by the iBoxx $ Treasuries, lost 1.25%.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 1

The overall index retreated 0.77% in May, with declines observed across all rating and maturity segments.  Losses were more pronounced in the high yield segment (down 3.41%) compared to investment grade bonds (down 0.37%).

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 2

Except for Singapore (up 0.46%), all other markets that make up the top seven largest in the index saw negative returns.  South Korea (down 1.15%) and Indonesia (down 0.73%) were the worst-performing markets.

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U.S. Equities Market Attributes May 2023

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Howard Silverblatt

Senior Index Analyst, Product Management

S&P Dow Jones Indices

KEY HIGHLIGHTS

U.S. Equities Market Attributes May 2023: Exhibit 1

MARKET SNAPSHOT

The S&P 500 stayed in its two-month trading range then broke above it at month’s end, buoyed by the debt ceiling and spending agreement.  The market did not seem to appreciate the deal, but the alternative could have been disastrous, as it returned to the 4,200 level, reaching 4,231 intraday (the prior 4,200 close was in August 2022); it closed the month under that point, at 4,180.  The May 0.25% gain was seen as a win, given that the regional banking and debt issues seemed to be behind us.  Volatility remained unusually low, especially given that earnings reports had almost finished for Q1 2022, which ended nicely, up 4.8% over Q4 2022 (or to be balanced and fair, 1.0% below where the estimate was at the opening of the quarter—before it was lowered).  Debt ceiling issues dominated the headlines, as earnings guidance and a potential “selective” or “soft” landing dominated the trades, and recession started to be assigned based on major industry group classification.

At the bar, however (at least the few I still get to), the “kids” (30- or 40-somethings) seemed to be talking more about AI potential, along with the usual grand vision of tomorrow and its associated M&A hype.  From my perch, that became self-evident when online learning and study tool company Chegg (CHGG) declined 48% for the day (-65% YTD) earlier in the month, as it warned that students appeared to be drawn to AI (ChatGPT) and its subscription rates (and therefore business) declined.  If they weren’t studying those trades and missed out, the other side of AI showed up in Nvidia (NVDA), as it easily beat estimates and increased its forecast, citing current and expected AI sales, with the shares up 24% the day after the earnings and guidance release (up 159% YTD); it joined the trillion-dollar club for a moment but closed the month below it.  At the bar, “they” spoke of the potential and their searches for AI in corporate text, with the conclusion that this could be the start of great opportunity (and profits).  In “our” conversation, we reminisced about the Information Technology takeoff in the late 1990s, when the sector posted a 77.6% gain in 1998 and 78.4% gain in 1999, to be followed by -41.0% in 2000, -26.0% in 2001 and -37.6% in 2002, with the five-year net return being -13.6% (with many fortunes and bankruptcies).  We found ourselves mostly agreeing that it was the start of public AI investing, but that the true intelligence was still in differentiating real product advancement and use, as well as integration into existing processes.

At this point, to me, it seems that system learning via repetitive observations to improve processes, better quantify results and improve analysis of risk/reward would be a gift, empowering many, improving efficiency and maybe increasing the standard of living; it may also bring layoffs, business failures, misinformation and social complications. 

May ended with the House approving the debt legislation (314-to-117), which is expected to close the deal in the Senate and then get a presidential signature, all of which needs to be done before the current June 5 “X’ date (or another stop-gap will need to be created).

After that, the FOMC June 13-14 meeting will be the prime discussion point, as futures moved on May 31 to favor a pause (65% from the prior day’s 33%), even though much of the data supported another 0.25% interest increase; throughout the futures seesaw, most of the Street held to their pause button view.  At this point, a pause or even an increase may not disrupt markets as much as it would have a month ago, if Powell’s commentary can make the case and indicate that the eventual end of increases is coming, as well as the start of cuts.  The Street is still looking for a Q4 2023 cut, as futures quantify it at a 55% chance.

The market focused on the debt ceiling issue, with the implied change to government spending.  It moved past the banking situation, as earnings results and forecasts pointed to a shifting and selective consumer (at a time when government spending is unclear). The Street still saw a Fed pause in interest rate increases at the June 13-14, 2023, meeting, with most of the Street still expecting a Q4 2023 interest rate cut. 

iBoxx USD Asia Ex-Japan Monthly Commentary: April 2023

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Randolf Tantzscher

Managing Director, Head of APAC Fixed Income Product Management

S&P Dow Jones Indices

April 2023 Commentary

As markets recover from the short-term volatility caused by a few high-profile collapses of troubled banks in March, April saw the S&P 500® inch up 1.46%, its second consecutive positive month.  The spread of investment grade corporate bonds—represented by the iBoxx $ Corporates—was relatively unchanged, a mere drop of 2 bps from the end of March, to 167 bps. At the same time, U.S. Treasuries, represented by the iBoxx $ Treasuries, gained 0.56%.

On May 1, the financial health of U.S. regional banks was questioned again, as regulators seized the assets of First Republic Bank—a commercial bank that also offered wealth management services, headquartered in San Francisco—which was the bought by JPMorgan Chase.

This announcement came a day ahead of the Federal Reserve meeting on May 2-3, as market participants anticipated its next move against signs of a slowing economy (at the time of publication, the Fed has announced a quarter-point increase of 25 bps, its 10th consecutive hike).

As shown in Exhibit 1, the index posted a second month of gains in April. The gains were driven by a strong performance of investment grade bonds. The index yield stood at 5.84% while spreads remained at similar levels to March, at 214 bps.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 1

Investment grade bonds showed positive returns across all rating and maturity segments in April. The overall index advanced 0.81%, driven by positive performances in the longer end of the maturity spectrum. In contrast, high yield bonds posted a loss of 0.84% driven by losses in the BB and CCC segments.

iBoxx USD Asia Ex-Japan Monthly Commentary: Exhibit 2

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