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It was an ugly day in the stock market, with the S&P 500 finishing down about 40 bps, despite Meta jumping more than 11% and Microsoft gaining around 4%. The equal-weight RSP ETF performed even worse, losing roughly 90 bps.
The S&P 500 initially rose about 70 bps but gave back those gains following a hotter-than-expected PCE report. Tomorrow’s focus shifts to the jobs report, with consensus expectations low at just 110,000—though Kalshi markets suggest another upside surprise could be in store, betting on 130,000 jobs created in July.
The VIX 1-Day climbed to 16.8 today, which is relatively low ahead of a jobs report. Unless implied volatility rises significantly during the overnight session, tomorrow’s volatility crush after the jobs data should be minimal. However, for implied volatility to move higher overnight, futures would need to sell off between now and the report’s release at 8:30 AM ET.
The 1-month implied correlation index moved higher today, and it’s likely to keep climbing, especially considering both Apple and Amazon reported earnings tonight. If historical seasonal patterns hold, the correlation index is expected to continue rising, indicating that the S&P 500 may have already reached its peak.
The 10- and 21-day realized volatility measures have stopped declining, and at this stage, both appear poised to rise. This likely signals higher implied volatility levels ahead.
Technically speaking, the S&P 500 formed a bearish engulfing pattern today—the second occurrence this week. Additionally, it appears to have broken the uptrend established in late June.
The dollar index rose again today, boosted by the hotter-than-expected PCE report and Employment Cost Index. If tomorrow’s jobs report beats expectations—as Kalshi markets suggest and recent Paychex and ADP data indicate—there’s a strong likelihood the dollar will extend its recent gains. Ultimately, it will hinge on government hiring at the state and local levels.
For the most part, the S&P 500 has been trading inversely to the dollar index. Before May 9, when the dollar declined, stocks also fell; after May 9, as the dollar weakened, stocks moved higher. Now, with the dollar gaining strength again, equities are beginning to struggle.
If the Citi Economic Surprise Index has any say in the matter, the dollar’s rally might just be getting started—as hard as that may be for some to believe.
-Mike
Terms By ChatGPT
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bps (basis points): A unit equal to 1/100th of a percent, commonly used to describe changes in interest rates or financial indices.
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RSP ETF: An exchange-traded fund that tracks the S&P 500 using an equal-weight methodology rather than market capitalization.
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PCE report: Personal Consumption Expenditures Price Index, a key measure of inflation watched closely by the Federal Reserve.
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Kalshi markets: A prediction market platform where participants bet on outcomes of real-world events, such as economic data releases.
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VIX 1-Day: A measure of expected stock market volatility over the next day.
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Implied volatility: The market’s forecast of a likely movement in a security’s price, often derived from option prices.
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Implied correlation index: Measures the expected correlation of stock returns in the S&P 500, which rises when stocks move more in sync.
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Realized volatility: The actual historical volatility observed in asset prices over a certain period.
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Bearish engulfing pattern: A technical analysis pattern where a large red candlestick fully engulfs a smaller green candlestick, often signaling a potential reversal.
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Dollar index: A measure of the U.S. dollar’s value relative to a basket of foreign currencies.
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Employment Cost Index: A quarterly economic series that details changes in the costs of labor, including wages and benefits.
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Citi Economic Surprise Index: Tracks how economic data releases compare to consensus expectations; a rising index suggests better-than-expected data.
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.
Subscribe to receive this FREE daily commentary directly in your email
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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