Aviso Weekly Market Monitor: May 15th – May 19th

May 23, 2023

Market developments

Equities:
The S&P 500 failed to maintain its two-day rally, falling below the crucial level of 4,200, but was up 1.6% for the week. The possibility of a Federal Reserve rate hike in June was diminished as Jerome Powell signaled a pause. The uncertainty surrounding debt-ceiling negotiations and the potential delay in reaching a resolution weakened the chances of a rate increase. Additionally, the news of Treasury Secretary Janet Yellen suggesting the need for more bank mergers led to a slump in the SPDR S&P Regional Banking exchangetraded fund, which fell 1.9%.

Fixed income:
Money managers are increasingly favoring longer-term corporate bonds as they anticipate a potential pause in rate hikes. This month, approximately 26% of U.S. investment-grade corporate bond sales have consisted of securities maturing in 30 years or more, a significant increase compared to April’s 4% and last year’s 15%. Investors are seeking higher coupon payments and locking in attractive yields amid the belief that the Fed has concluded its tightening campaign. This shift reflects a change in strategy as shorter-term debt was preferred during rising rate periods. With the macro-outlook uncertain, money managers are drawn to longer-dated securities, expecting potential rate cuts and improved performance in the event of a recession. Despite wider high-grade corporate bond spreads, longer-term securities have demonstrated relatively better performance compared to intermediate notes.

Commodities:
Oil prices recorded their first weekly gain since early April, driven by market sentiment favoring risk assets due to growing optimism surrounding a potential debt-ceiling deal in the U.S. The focus shifted away from fundamental factors, with traders closely monitoring developments in Washington. Signs of supply tightening, including Asian refiners resuming purchases of U.S. oil cargoes, contributed to the price buoyancy. However, crude prices remain down approximately 11% for the year due to China’s sluggish economic recovery and the Federal Reserve’s monetary tightening.

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