Week of Jan 05 2025

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Outlook

The start of 2025 presents a market environment defined by historic divergences and mounting structural pressures. December's unusual weakness (-2.5% for S&P 500) and the failure of the traditional Santa Claus rally have heightened focus on January's direction. U.S. exceptionalism remains the dominant market narrative, with American equities now representing 63.06% of global market capitalization amid deteriorating liquidity in international markets. This concentration is evidenced by a rare technical divergence where the S&P 500 trades more than 7% above its 200-day moving average while fewer than 60% of constituents maintain that same technical strength. The S&P 500's forward P/E of 21.5x and projected Q4 earnings growth of 9.6% suggest fundamental support, though this comes amid concerning market structure dynamics where passive flows continue concentration in mega-caps.

The bond market is sending increasingly concerning signals, with the term premium expanding 75 basis points over three months independent of Fed expectations, suggesting growing skepticism about fiscal sustainability. This dynamic, coupled with yields rising 100bps since September despite weakening economic data, indicates potential regime change in rates markets that could challenge equity valuations.

The primary risk framework pits a potential disorderly unwind of extreme positioning against a "goldilocks" scenario where productivity gains contain inflation despite robust growth. Recent systematic selling ($71 billion from vol control funds) and shifting dealer gamma positions suggest heightened near-term sensitivity to economic data and positioning adjustments. This tension between strong momentum in major indices and deteriorating market internals creates a particularly challenging environment for asset allocators balancing career risk against growing evidence of market structure vulnerabilities.

The immediate focus turns to a heavy economic calendar next week, centered on Friday's non-farm payrolls report. Key inflation readings from Europe and China, along with U.S. labor market indicators including JOLTS and ADP data, could provide critical insight into the global growth-inflation balance. Technical levels under close watch include NASDAQ-100 at 20,830 (CTA trigger point), the 10-year yield range of 4.75-5.00%, and breadth metrics that could signal broader market participation or further concentration.

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Macro Dashboard

Forward Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔵	272.67	263.39	243.98	January 1, 2024
Forward 4-qtr PE	🔴	21.8	22.7	20.16	January 1, 2024
Nominal Earnings Yield	🔵	4.59	4.41	5.19	January 1, 2024

Volatility & Correlations

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	12.66	11.94	0.72	6.03%
SPX GEX Flip	🔴	5,977.5	5,987.5	-10	-0.17%
SPX Skew Adjusted GEX	🔵	-3,600,521,140	-4,857,396,830	1,256,875,690	25.88%
Equity Put/Call Ratio	🔴	0.45	0.67	-0.22	-32.84%
SPX/SPXW Put/Call Ratio	🔴	1.24	1.26	-0.02	-1.59%
VIX Put/Call Ratio	🔴	0.32	0.66	-0.34	-51.52%

Cross-Asset Volatility — CBOE

Cross-Asset Correlation — CBOE

S&P 500 Futures

March E-mini S&P 500 futures settled at a one week high of 5989.50 Friday, up by 73.00 (1.23%). Overall, 1,208,153 contracts were traded, with 1,206,570 done in March. Combined open interest decreased by 6,163, or 0.30%, to 2,071,532. March lost 6,136 (0.30%), finishing at 2,062,421.

Option volumes were greatest for the Jan E1A 6050 call (5,303) and the Jan E1B 4850 put (53,739). In Jan options, the highest volume call was in the 5980 strike with 3,412 done, and the 5475 put leads with volume of 8,845. Calls with the highest open interest are the Jan EW3 100 strike (22,441), and for the puts are the Jan E1B 4850 strike (53,739).

Implied Volatility settled sharply lower with the 30-day at-the-money off 1.71%, to finish the session at a one week low of 12.59%. Up 0.48% to a one month high, historical volatility (as measured by the 30-day) finished the day at 14.17%.

Higher TF (W → D) NEUTRAL - Last week's bear flag remains unresolved, lacked follow-through to break the prior week's low, and formed a potential two-bar reversal from Thursday to Friday. Bears will likely view the closing price action as a retest of the 50d MA at 6032.50 (+0.72%), setting up a measured move lower (targeting the 200-day MA at 5722). Bulls see a breakout failure and possible HL relative to WLO.1, contingent on follow-through and acceptance above 6032.50. The key question: Will Friday's price action usher upside continuation, or prove to be the first flag in a developing bear channel, subsequent to December’s FOMC spike (down)? Our base case remains continuation of two-side trade between WLO.2 5866 and WHI.1 6107.50 (R 241.50 4.12%).

Lower TF (3H → M30) NEUTRAL - The lower timeframe bear channel is highlighted on charts 1 & 2 above; three downward pushes have been absorbed over two weeks. This price action often leads to exhaustion and reversal, which occurred on Friday's trend day and channel breakout. Continuation or lack thereof will be crucial in determining directional bias for the upcoming first full week of trading. Bulls need follow-through above the 6000.75 trading range high, which is approximately the midpoint of the higher timeframe trading range 5866 → 6107.50 (highlighted on chart 1). Meanwhile, bears are well positioned to remain responsive and cause a measured move below WLO 5874.74 (-1.92%) based on Friday’s range.

ATM IV30 12.59% v HV 14.17% IV-HV -1.58%
Bulls will seek follow-through bid and re-establish acceptance above the 50d MA on a closing basis. Upside: WVAH.1 6064 (+1.24%) is is within +1σ (W) 6105.00 (+1.93%).
Bears will seek a second-leg down from Friday’s reversal high and recapture < 5900 a closing basis. Downside: WLO 5878.50 is just beyond -1σ (W) 5878.50 (-1.85%).

Last Week: 5989.50 MAR25 -0.69%
~~Bulls will seek to close and re-establish acceptance above Friday’s Gap 6063.25 (and WVAH) on a closing basis. Upside: 6115 FOMC breakout point, 6115 (+1.46%) is~~ ~~within~~ ~~+1σ (W) 6141.00 (+1.91%).~~
Bears will seek a second-leg down from Friday’s spike and offer below WLO on a closing basis. Downside: Higher TF Control Point 5928 (-1.63%) is within -1σ (W) 5916 (-1.84%).

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