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As noted yesterday, we did indeed get the volatility crush following the CPI report. Nothing new. The move was muted to some degree because the VIX 1D closed at 13.4 yesterday. The rule of 16 implies the market was pricing in an 84 bps move. So I guess it’s no surprise that the S&P 500 rose by a stunning 85 bps. We see the same thing every time the VIX 1D gets elevated heading into an event. The funny thing is, I keep writing about it and reminding everyone.
The more interesting thing is that Amazon, Alphabet, Microsoft, Meta, Nvidia, and Broadcom did absolutely nothing on the day. Meanwhile, Tesla, Apple, and the other 492 stocks had to do the heavy lifting. I couldn’t begin to tell you what happens tomorrow. But with volatility reset and liquidity being an issue, it wouldn’t be surprising to see a much more mellow day. It might even give back today’s gains, fill the gap from today’s open, and find support around 6,540.
Reserve balances fell this week to $3.15 trillion from $3.16 trillion. The TGA dropped a bit today, which resulted in a slightly higher reserve balance than what had been tracking earlier in the week.
The effects of the TGA refill are being felt across the market complex. Overnight repo rates have moved higher, with SOFR rising as well. SOFR is likely to push back above 4.4% on Friday, given that today’s average repo rate was 4.46%.
Meanwhile, equity repo financing activity has fallen sharply over the past couple of weeks. While it has rebounded off its lows, it still remains well below its highs.
Anyway, I’m really tired and drained today. I’ll be back over the weekend.
Mike
Terms by ChatGPT
Glossary
Basis Point (bps) – One hundredth of a percentage point (0.01%), used to express changes in interest rates or yields.
CPI (Consumer Price Index) – A measure of the average change over time in the prices paid by consumers for goods and services, used to track inflation.
Equity Repo Financing – The use of repurchase agreements (repos) with equities as collateral to obtain short-term funding.
Liquidity – The ease with which assets can be bought or sold in the market without significantly affecting their price.
Overnight Repo Rate – The interest rate at which securities are sold and repurchased on an overnight basis in the repo market.
Reserve Balances – Deposits that commercial banks hold at the Federal Reserve, which can influence liquidity conditions in financial markets.
SOFR (Secured Overnight Financing Rate) – A broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.
TGA (Treasury General Account) – The U.S. Treasury’s primary account at the Federal Reserve, used to manage government cash flows.
VIX 1D – A one-day measure of implied volatility derived from S&P 500 options, indicating expected near-term market fluctuations.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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