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The S&P 500 finished higher by around 45 bps, while the equal-weight RSP ended lower on the day by nearly 40 bps. It wasn’t exactly a great day for most of the market, though you wouldn’t know that by looking at the headline readings.
It feels like things are going from bad to worse on a daily basis in the S&P 500, with the index getting increasingly stretched. I’ve been asked a few times over the weekend and again today when it might turn, and my answer has been the same each time—I think we’re there. A significant amount of liquidity has been drained from reserve balances, and we’ve seen that pressure show up in the overnight repo markets as well.
With OPEX behind us, there’s no pinning effect supporting the market at this point. Meanwhile, realized volatility remains at very low levels, even as dispersion is running quite high.
The volatility of S&P 500 constituents was higher today, which seemed odd, though the VIX was also higher—also unusual given that the S&P 500 finished up on the day.
9-day realized volatility ticked higher on the day, rising from a minuscule 4.89 to 4.95.
Meanwhile, 3-month realized volatility fell to 8.65.
There isn’t a single indicator that can tell us the market is topping, but when you combine several together—and consider how overvalued the index and many of its stocks are, along with the liquidity that has already been drained—you realize there doesn’t need to be a specific reason for a turn, and just that the music stopped.
Glossary by CHATGPT
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Bps (basis points) – A unit of measure equal to one one-hundredth of a percentage point (0.01%).
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Dispersion – The degree to which individual stock returns within an index differ from each other.
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Equal-weight index (RSP) – An index in which all constituent stocks carry the same weight, regardless of market capitalization.
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Liquidity – The availability of cash or easily tradable assets in the financial system.
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OPEX (options expiration) – The date on which listed options contracts expire, often causing short-term market effects.
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Overnight repo markets – Short-term lending markets where securities are sold and repurchased the next day, used by banks for liquidity needs.
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Realized volatility – A measure of how much an asset’s returns have actually fluctuated over a given period, based on historical data.
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Reserve balances – Cash deposits that commercial banks hold at the Federal Reserve, used for meeting liquidity and regulatory requirements.
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VIX – The CBOE Volatility Index, which measures the market’s expectations for near-term volatility in the S&P 500.
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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