NASDAQ at 15-year high
US equity markets gained in the week ended April 24, 2015. The S&P 500 index, tracked by the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV), was up 1.7%. The Dow Jones Industrial Average (or DJIA), tracked by the SPDR Dow Jones Industrial Average ETF (DIA), was up 1.4%. But last week was all about the NASDAQ, which gained 3.2%.
Not only did the index rise sharply, it topped highs last seen in March 2000. April 23, 2015, saw the index ending at its highest since March 10, 2000, when it closed at 5,048.62.
The present composition of the NASDAQ is vastly different from what it was at the height of the dot-com bubble. Tech (technology) companies, which formed 65% of the index then, form ~42% of the index now. Consumer and healthcare companies have seen their shares rise sharply in the same period.
This latest high was helped by strong results from tech companies. Amazon (AMZN), Google (GOOG), and Microsoft (MSFT), which all posted strong results, helped the index scale its previous peak. The announcement that Teva Pharmaceutical Industries (TEVA) has offered to buy Mylan N.V. (MYL), a NASDAQ component, also helped the index soar higher.
Earlier in the week, stocks propelled after the Chinese central bank reduced its reserve requirement ratio by 1%, or 100 basis points, the highest since December 2008.
Volatility fell in the week. The iPath S&P 500 VIX Short Term Futures ETN (VXX), which tracks volatility, fell 6.3% for the week after rising 0.7% in the previous week.
Treasury yields rise
While China’s stimulus had a favorable impact on stocks, it pushed Treasury yields higher as investors moved to risky assets and away from the safety of government bonds. William Dudley, the chief of the New York Fed, was optimistic about a rate hike in 2015, given the strong economy. This also led to a rise in yields.
However, weak business equipment orders for March, an indicator of future corporate spending, pulled yields lower from their high. So did a weak new home sales report. However, this pull was not enough to reverse the highs, and yields ended the week higher. As a result, the iShares 20+ Year Treasury Bond (TLT) fell 1.8% in the week.
Unlike yields on Treasuries and investment-grade bonds, junk bond yields fell in the week. With a fall in junk bond yields, related ETFs like the SPDR Barclays Capital High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) rose in the week ended April 24.
This series will cover the developments in the primary and secondary markets for high-yield debt and leveraged loans.