Market Wrap
Outlook
The conclusion of Week 5 marks a complex inflection point characterized by three converging forces: the DeepSeek AI disruption to U.S. tech dominance, Trump's sweeping tariff announcements, and increasingly anomalous market volatility patterns. What makes this juncture particularly significant is that realized volatility has reached its second-highest level since the 2023 regional banking crisis, yet the VIX at 16.43 presents a deceptively calm surface reading. This disconnect between realized and implied volatility, combined with an unusually high VVIX/VIX ratio, suggests growing market uncertainty masked by headline indices.
The technical landscape reveals several concerning anomalies. The divergence between NVDA's three-month implied volatility (approaching 2022 highs) and QQQ volatility (near lows) indicates potential mispricing of risk. The VIX futures term structure shows unusually flat contango between March and July contracts, contrasting with steeper SPX options curves - a disparity that historically signals potential market stress. These technical indicators gain additional weight given Goldman's assessment of a potential shift after February 16th, when seasonal supports begin to fade.
The macro environment has become markedly more complex. Beyond the Federal Reserve's recent pushback against March rate cut expectations, markets must now process the stagflationary implications of Trump's broad tariff program - 25% on Canadian and Mexican imports and an additional 10% on Chinese goods. This policy shift introduces immediate inflation risk at a time when core PCE remains stuck at 2.8%, potentially forcing the Fed to maintain higher rates for longer than markets currently expect.
The left tail risks have evolved from theoretical to immediate, centered on policy uncertainty and market structure vulnerabilities. The combination of confirmed trade restrictions, reduced market gamma, deteriorating liquidity conditions, and unusual volatility patterns creates heightened vulnerability to negative catalysts. Right tail scenarios, while still possible through strong economic fundamentals and potential policy moderation, appear more challenging given the weekend's developments. The critical question facing markets is whether current technical supports and strong seasonal patterns can withstand this convergence of fundamental challenges.
Looking ahead to Week 6, the calendar is particularly dense with potential catalysts. Friday's NFP report takes on heightened significance given the uncertain policy environment, as strong job creation could challenge rate cut expectations or even raise hiking concerns. Key earnings from AI/Tech leaders (AMD, Alphabet) will test both sector valuations and the impact of DeepSeek's emergence, while reports from consumer bellwethers (Amazon, PepsiCo) will provide insight into tariff implications. The market's immediate response to Shanghai's Sunday night open will provide the first indication of how global markets process these compounding uncertainties.
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Forward Earnings
Metric | UpDn | This Week | Prior Week | % Change | % Baseline | Baseline | Baseline TF |
|---|---|---|---|---|---|---|---|
Forward 4-qtr Estimate | 🔴 | 272.77 | 273.17 | 263.39 | January 1, 2025 | ||
Forward 4-qtr PE | 🔴 | 22.3 | 22.4 | 22.7 | January 1, 2025 | ||
Nominal Earnings Yield | 🔵 | 4.48 | 4.46 | 4.41 | January 1, 2025 |
Volatility & Correlations
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG | Excess |
|---|---|---|---|---|---|---|
VIX3M - VIX1M 10d Z | 🔴 | -0.2 | 1.11 | -1.31 | -118.02% | |
COR1M | 🔴 | 8.42 | 9.88 | -1.46 | -14.78% | |
COR3M | 🔴 | 12.51 | 14.49 | -1.98 | -13.66% | |
Equity Put/Call Ratio | 🔴 | 0.49 | 0.52 | -0.03 | -5.77% | |
SPX/SPXW Put/Call Ratio | 🔵 | 1.28 | 1.22 | 0.06 | 4.92% | |
VIX Put/Call Ratio | 🔵 | 0.78 | 0.27 | 0.51 | 188.89% | |
OEX Put/Call Ratio | 🔵 | 4 | 0.07 | 3.93 | 5,514.29% |
S&P 500 Futures
ATM IV30 12.93% v HV 13.51% IV-HV -0.58%Bulls will seek to hold the 6056.50 → 6146.75 TR and ideally reverse and breakout to the upside. Upside: WHI 6146.75, YTD High 6162.25, and ATH 6184.50 are within +1σ (W) 6186 (+1.96%).Bears will seek to form a second-leg down by offering below 6056.50 on a closing basis. Downside: 6000 (-1.11%) and MM 5965.25 target are within -1σ (W) 5953 (-1.88%).
Last Week: 6067.25 MAR25 -1.10%Bulls will seek to hold the 6120.25 → 6162 HVN and ideally breakout to the upside and build price acceptance above. Upside: Back-adjusted ATH 6184.50(+0.84%) is within+1σ (W) 6242 (+1.77%).Bears will seek to cause cessation of DTF 1TFU with a second-leg down below Friday’s LO on a closing basis. Downside: WMID (-0.9%) and 50d MA 6048 (-1.39%) are within -1σ (W) 6028.50 (-1.71%).
Indicators
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