Subscribe to receive this FREE daily commentary directly in your email
Today’s market was a bit volatile, though not surprising. We mainly saw sideways trading for most of the day until about 2 PM, when we experienced a significant downdraft. However, that was reversed into the close with a reasonably sizable buy imbalance. According to Financial Juice, the S&P 500 had a $2.3 billion buy imbalance going into the final minutes, helping lift stocks at the close.
The bigger story today, though, is the VIX 1-day index. We discussed it yesterday when it was at a low of just 11. Today, it closed at 15.70—a 42% increase—implying that tomorrow, we’ll likely see about a 1% move in the S&P 500. Typically, when the jobs report comes out, volatility on the VIX gets crushed and the S&P 500 moves lower. After that volatility reset, regular trading should resume. The VIX 1-day index will likely open sharply lower tomorrow. So, we could be in a scenario where we see an initial knee-jerk reaction higher regardless of the job report outcome.
I think the FX and rates markets will probably offer the best overall view of how the market responds—not necessarily the equity market. We’ve seen some flattening at the 30-year minus 3-year yield spread. It had been around 60-65 basis points, but now it’s back down to about 30 basis points. That will be something to watch tomorrow to see if the steepening continues after the report.
As for the 10-2 spread, we’ve discussed how it looks like it’s in a bull flag pattern in the short term since mid-December. Right now, it’s at the lower end of the range. If the bull flag is going to hold, we need a hot jobs report tomorrow. Otherwise, we could see the 10-year yield break below 4.40% and possibly head toward 4.15%. That’s not what I’ve been expecting, but it’s possible. We’ll have to see how the numbers come in. It’s also unclear how the benchmark revisions will weigh into the data.
The estimates suggest 170,000 new jobs, compared to 256,000 last month. The unemployment rate is expected to remain unchanged, while average hourly earnings are forecasted to stay at 0.3% month over month and fall to 3.8% year over year from 3.9%.
The NFIB released its jobs report today, showing that actual compensation changes rose four points to 33%. While this isn’t a one-to-one indicator with wages in the BLS report, it’s interesting. Additionally, S&P Global’s PMI report previously noted compensation pressures. Also, the same report, which came out on February 5th, in the first line of the report states: “Stronger job creation despite slowdown in output growth at start of 2025” and “Job creation hits 31-month high“.
So, anecdotal evidence suggests that tomorrow’s number could be substantial. We’ll have to see how it plays out.
Before wrapping up, I wanted to highlight that TradingView now includes BTIC S&P 500 Total Return Index futures. Anyone can now access this data using the symbol AST1, which provides the generic contract for the current month. You can find other months through the dropdown.
Today, equity financing costs for the current contract finished around 54, and they haven’t recovered from the significant decline following the December Fed meeting at the start of the year. Interestingly, we’re at the low end of the range since mid-September.
We also received the New York Fed Primary Dealer Report, which showed that overnight, repo activity for equities dropped from $142.8 billion to $132.3 billion. This aligns with the broader theme we’ve discussed: Demand for leverage hasn’t reemerged, which likely explains why the equity market has been trading sideways for the past few weeks.
-Mike
Terms By ChatGPT
1. VIX 1-Day Index
•A measure of expected stock market volatility over the next trading day, derived from S&P 500 options. Unlike the standard VIX, which measures expected volatility over 30 days, the VIX 1-day index provides a much shorter-term outlook.
2. Closing Cross
•A mechanism used by stock exchanges, such as NASDAQ and NYSE, to match buy and sell orders at the end of the trading day to determine the official closing price.
3. Buy Imbalance
•A situation in which there are more buy orders than sell orders at market close, which can push stock prices higher.
4. Bull Flag Pattern
•A bullish technical analysis pattern where a sharp price increase (the “flagpole”) is followed by a period of consolidation with a downward or sideways trend (the “flag”), before another potential upward breakout.
5. 30-Year Minus 3-Year Yield Spread (30-3 Spread)
•The difference between the yield on a 30-year US Treasury bond and a 3-year Treasury note. A widening or narrowing spread can indicate changes in market expectations about future economic growth and Federal Reserve policy.
6. 10-2 Spread (10-Year Minus 2-Year Yield Spread)
•The difference between the yield on a 10-year Treasury bond and a 2-year Treasury note. A negative 10-2 spread is often seen as a recession indicator.
7. BTIC (Basis Trade at Index Close)
•A type of futures trade where the execution price is linked to the closing price of the underlying index. Often used by institutional traders for hedging and arbitrage strategies.
8. S&P 500 Total Return Index Futures
•Futures contracts that track the S&P 500 Total Return Index, which includes both price appreciation and dividends reinvested, offering a more comprehensive measure of returns compared to standard S&P 500 futures.
9. Equity Financing Costs
•The cost associated with borrowing money to buy stocks or maintaining leveraged positions. This can include margin interest rates and repo financing rates.
10. Repo (Repurchase Agreement) Activity for Equities
•A short-term borrowing mechanism where securities (such as stocks) are sold with an agreement to repurchase them later at a slightly higher price. It’s a common way for financial institutions to obtain short-term funding.
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.
The Pivot Games: Tariff Edition
Mott Capital's Market Chronicles 6 hours ago