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Stocks finished the day mostly higher, with the S&P 500 advancing by roughly 0.50% and the NASDAQ 100 up about 0.25%.
There was an unusual rotation within the S&P 500, with 436 stocks ending higher and just 66 lower. It’s peculiar to see such rotations and have the index increase by only 0.50%. This suggests that something mechanical might have been at play, possibly a sharp decline in short-dated implied volatility following the reset after Nvidia’s results.
The VIX 1 Day fell to 13.9 from yesterday’s close of 19.1.
Today, the HYG was relatively flat, suggesting a more muted trading mood in the market overall, unlike the significant rotational movements seen in the S&P 500.
Additionally, the 1-month implied correlation index rose today to 16.4, marking an increase over several consecutive days. Typically, the S&P 500 and the implied correlation index move in opposite directions. However, in an unusual turn of events, both the S&P 500 and the implied correlation index have risen together over the last four days.
This suggests that underlying dynamics in the equity market might not be as bullish as recent days have portrayed. To this point, the S&P 500 has closed the gap from November 14 and appears to have formed a megaphone pattern, which could be interpreted as bearish. We need to be mindful of the possibility of a break lower, potentially falling below 5850.
In the meantime, the dollar index is on the verge of breaking above the highs last seen in October 2023. Should this occur, it could pave the way for the DXY to climb to around 109.
Finally, 2-year inflation swaps continue to rise, increasing by another 1.2 basis points to 2.71% today. This strongly suggests that rates will climb even higher. I anticipate that rates across the curve will begin to rise very soon. Perhaps the market is waiting for the appointment of the Treasury Secretary for the Trump administration. However, for now, 10-year rates seem too low given the direction in which inflation expectations are headed.
-Mike
Charts used with the permission of Bloomberg Finance L.P. 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.