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U.S. Equities Market Attributes May 2023

iBoxx Asian Local Currency Indices Monthly Commentary: April 2023

iBoxx USD Asia Ex-Japan Monthly Commentary: April 2023

U.S. Equities Market Attributes April 2023

S&P Kensho New Economies Commentary: Q1 2023

U.S. Equities Market Attributes May 2023

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Howard Silverblatt

Senior Index Analyst, Product Management

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. 

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iBoxx Asian Local Currency Indices Monthly Commentary: April 2023

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Kangwei Yang

Director, Fixed Income Product Management

S&P Dow Jones Indices

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

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 also 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 then 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).

iBoxx Asian Local Currency Indices: Monthly Commentary: Exhibit 1

Capital gains in most local markets were offset by the depreciation of most currencies against the U.S. dollar, keeping the iBoxx Asian Local Bond Index (ALBI) (unhedged in USD) flat in April.

All but one local market posted gains in April, with India and Singapore at the top of the leaderboard, both registering returns of 1.52%.  Thailand was the exception, losing 0.55% during the month.  Year-to-date, all local markets in the index recorded gains, led by the Philippines (up 4.28%), while China Onshore (up 1.24%) posted the lowest return.

Except for Thailand, all other local markets saw a sea of green across the yield curve, with larger gains toward the longer maturities.  The highest returns were concentrated in the 10+ segments, led by Singapore 10+ (up 3.09%) and Malaysia 10+ (up 2.47%).

As of the end of April, the overall index yield declined marginally by 3 bps to 3.92%, while yields for most local markets declined.  India remained the highest-yielding bond market in the index, offering 7.20%, while Thailand (2.86%) remained the lowest-yielding market.

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iBoxx USD Asia Ex-Japan Monthly Commentary: April 2023

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Randolf Tantzscher

Managing Director, Head of APAC Fixed Income Product Management

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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U.S. Equities Market Attributes April 2023

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Howard Silverblatt

Senior Index Analyst, Product Management

Key Highlights


- The S&P 500® was up 1.46% in April, bringing its YTD return to 8.59%.
- The Dow Jones Industrial Average® rose 2.48% for the month and was up 2.87% YTD.
- The S&P MidCap 400® decreased 0.87% for the month, bringing its YTD return to 2.47%.
- The S&P SmallCap 600® was down 2.87% in April and had a YTD return of -0.81%.

U.S. Equities April 2023: Exhibit 1

Market Snapshot

Battle lines were drawn in April.  No, not Biden versus Trump, DeSantis versus Disney, Default versus Debt Ceiling, First Republic Bank (-75% for April and -97% YTD) versus its Depositors, or even Pro-Life versus Pro-Choice, but the market battle: Recession versus Pull Back.  A slowing economy with continued high inflation (cost-push) led to acceptable corporate earnings, which beat expectations (thanks to recent downgrades in the estimates), as strong employment countered the continuing flow of layoffs, which, when measured against employment levels (and increases over the past few years), seemed numerous in announcements but minor in numbers (cutbacks).  The bottom line for April was a battle for the black, with the result for the S&P 500 being a 1.46% April gain, after a rebounding March return of 3.51%, bringing the index up 8.59% YTD.  The market embraced what it expects to be the U.S. Federal Reserve’s last hurrah of interest rate increases (at least for this cycle—come back in a decade, or less), with futures pointing to an 85% chance of a 0.25% interest rate increase at the May 2-3 meeting.  At this point, most see a stop (not even a pause) after that, with the speculation turning to when the first interest rate cut will occur (not that anyone believes the FOMC’s “far off” dot-plot estimate of 2024).  While the Fed may be done with increases, the next drama test will be the debt ceiling and spending level debate, with the “X” date a product of game theory (with this one having nothing to do with the official optimal decision-making theory, but a function of the Treasury’s “adjustments” and “definitions”).  At this point, few expect a default or government closure, with the public political battle expected to be dragged on to within a week or so of the “X” date.  The result, however, will set government spending and affect credits and taxes, and therefore corporate profits, with some winners and some losers.

Volatility significantly decreased for April, as the S&P 500 posted a 1.46% gain (after trading in the red for most of the month) on positive breadth (266 up, with 102 up at least 5%, compared to 235 down with 89 down at least 5%), as it was up 8.59% YTD, on positive breadth (291 up with 136 up at least 10% and 212 down, with 76 down at least 10%).  Eight of the eleven sectors were positive for the month (Communication Services did the best, up 3.56% and Industrials the worst, down 1.22%), as seven were up YTD (Communication Services at 24.46%, Financials at -3.21%).  The average daily high/low spread declined to 0.92% from last month’s 1.51%, and 7 of the 19 days had an intraday high/low spread of at least 1%, compared to 11 last month, as trading declined 24% for the month.

The S&P 500 closed at 4,169.48, up 1.46% (1.56% with dividends) from last month's close of 4,109.31, when it was up 3.51% (3.67%) from the prior month's close of 3,970.15 (-2.61%,
-2.44%).  For the three-month period, the index was up 2.28% (2.72%), as the YTD period was up 8.59% (9.17%) and the one-year return turned positive, up 0.91% (2.66%).  The Dow ended the month at 34,098.16, up 2.48% (2.57% with dividends) from last month's close of 33,274.15, when it was up 1.89% (2.08%) from the prior month's close of 33,656.70 (-4.19%, -3.94%).  The Dow was down 7.34% from its Jan. 4, 2022, closing high (of 36,799.65).  The YTD period was up 2.87% (3.53%), the one-year return was 3.40% (5.64%) and the 2022 return was
-8.78% (-6.86%).

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S&P Kensho New Economies Commentary: Q1 2023

The S&P Kensho New Economy Indices seek to track the industries and innovation of the Fourth Industrial Revolution

U.S. equities posted positive returns across the market cap spectrum in Q1 2023, with the S&P Composite 1500® up 7.2%.  The rise, however, was bumpy as investors navigated the banking-related crunch and its aftermath, with the biggest U.S. bank default since 2008, which also briefly spread to Europe.  A pattern of reversals from last year was well underway during the first two months of the quarter, when Communication Services and Consumer Discretionary were the top performers within the S&P 500®, while the Energy and Health Care sectors were the laggards.  After the U.S. banking hiccup in March, the Financials sector (-5.6%) became the biggest quarterly underperformer, while Information Technology (up 22%) and Communication Services (up 20.5%) took the top spots.  Recent returns of the Financials sector have diverged materially from their pattern of moving closely with the 10-year Treasury yields.  Weakness in U.S. regional banks also flowed through into the underperformance of the U.S. small-cap space, reflected in the sharp fall in the S&P SmallCap 600 versus S&P 500 Information Technology performance in March.  Secular growth outperformance and defensive sectors’ underperformance was in line with the performance of S&P 500 factors—high beta and growth took the top spots, while high dividend, pure value and low volatility were near the bottom of the table.  Of the 25 Kensho subsectors, 22 were higher this quarter, the first time since the highs posted in Q1 2021.  Most non-U.S. equity markets were also up this quarter—eurozone equities (up 10.5%) markedly outperformed U.S. equities, while emerging market equities posted relatively modest gains (up 2.3%).

The U.S. Fed’s tightening path was well anticipated by the markets at the beginning of the year, with expectations for the terminal overnight rate at one point hitting nearly 5.7%.  Continued pressure from sustained inflation and overall labor market strength were weighing on the Fed, until the crisis from Silicon Valley Bank (SVB) erupted.  As the contagion spread, the rates market immediately repriced the Fed rate hike path lower for the year.  U.S. Treasuries attracted significant inflows this quarter and posted one the best quarterly returns (3%) in nearly three years.  However, tighter financial conditions in the aftermath of the SVB collapse have seen high yield, and other higher risk segments of the debt markets show weakness.  The U.K. and European Central Banks stayed on course with the U.S. in terms of rate hikes during Q1.  The U.S. dollar, nonetheless, weakened across most of its heavily traded crosses this quarter, as expectations around a pause in the Fed’s rate hikes increased.  Gold also benefited from the rate repricing and bank credit concerns, surging above USD 2,000 to near-historic levels.  Oil prices stabilized this quarter after a downtrend over the previous two quarters, but it started to move higher after OPEC announced surprise oil cuts at the start of April.  Elevated U.S. sovereign CDS spreads continue to reflect the market unease around a potential deal before hitting the U.S. government debt ceiling X date sometime in the second half of the year.

Top Three from across the New Economies

Distributed Ledger (66.7%): KLEDGER posted its best quarterly performance since its inception in late 2018, climbing back up to September2022 levels.  Unsurprisingly, this quarter’s gains closely tracked the rise in the price of Bitcoin (up 71%).  The U.S. regional banking crisis around mid-March prompted renewed interest in currency alternatives like crypto and gold assets.  Almost all of the index constituents posted positive quarterly returns with the exceptions of Turkish firm Turkcell (-10%) and Financials firm ING Groep (-2%).  5 of the 12 constituents, primarily involved with the crypto mining space, posted triple-digit quarterly returns, with the top spots taken by Riot Platforms (up 195%) and Marathon Digital (up 156%).  The index continues to be dominated by the Application Software sub-industry (up 55%), followed by Financials sector firms (up 30%).  It also remains the most volatile across the Kensho subsectors due to a high beta to the crypto markets from its exposure to crypto mining companies.

Virtual Reality (27.2%): KVR’s best quarterly performance in two years was supported by positive contributions from nearly all of its constituents (17 out of 19).  The Semiconductors industry played an integral part in KVR’s recovery this quarter as the index neared its one-year peak.  NVIDIA was the top performer within the index (up 90%), doubling its price over the six-month period and becoming the best YTD performer among the S&P 500 constituents.  Investor sentiment toward NVIDIA likely took a hit from the downturn in crypto assets in 2022, but there has been widespread optimism around the company’s recent push toward creating products geared toward AI applications.  Meta, the second-best YTD performer (up 76%) within the S&P 500, was another top contributor to KVR’s performance.  Meta has also been on a comeback track, returning closer to its one-year peak on the back of strong Q4 2022 earnings reports and a focus on further incorporating AI-powered tools within their apps.  Faro was the notable underperformer (-16%) within KVR, as it slid close to its lowest level in over five years.  This imaging devices and computer-aided measurement firm posted lackluster Q2 2022 results and has been on a downward trend since reaching its peak in early 2021.  

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