Weekly Benchmarks - @Koyfin
Weekly Factors vs. S&P 500 - @Koyfin
Weekly Performance - @Koyfin
<aside> <img src="https://img.icons8.com/ios/250/FFFFFF/speech-bubble.png" alt="https://img.icons8.com/ios/250/FFFFFF/speech-bubble.png" width="40px" /> The market narrative is currently centered around three key themes: earnings resilience amid rising yields, mounting election uncertainty, and evolving market structure dynamics. Q3 earnings season has started strongly with 79% of reporting companies beating estimates and aggregate earnings surprising to the upside by 6.1%. However, this strength is occurring against a backdrop of rapidly rising Treasury yields, with the 10-year reaching 4.26% and showing the largest implied election "event risk" in four decades according to the MOVE index. The breakdown of traditional correlations, particularly in gold markets where prices are pushing to new highs despite real rate relationships breaking down, further exemplifies growing uncertainty about traditional market relationships.
Market structure indicators present an interesting tension between current positioning and potential catalysts. Dealers are currently in a neutral gamma position, creating a path-dependent environment where moves could be amplified in either direction. The tactical range being watched is between 5750-5850, with dealer selling pressure expected below 5800. Systematic funds are approaching peak leverage levels and are expected to add exposure as volatility declines, particularly next week as August volatility exits calculation windows. This technical setup suggests potential for amplified moves, especially given that global stock funds have seen $521 billion in inflows year-to-date, with money market funds holding a record $6.5 trillion in "dry powder."
Left tail risks include a disorderly rise in bond yields coinciding with election uncertainty, potential earnings disappointment from mega-cap tech names reporting next week, and escalation of geopolitical tensions. Right tail risks include stronger-than-expected tech earnings, systematic fund buying pressure supporting markets, and potential deployment of money market assets into equities supporting a year-end rally. The VIX currently embeds 3.5 points of geopolitical risk premium, suggesting it could fall to 14.5 if Middle East tensions dissipate.
Upcoming catalysts include earnings reports from five Magnificent Seven companies (Apple, Microsoft, Alphabet, Amazon, and Meta), critical economic data including US GDP, consumer confidence, JOLTS, and non-farm payrolls, and ongoing developments in both Middle East tensions and election polling. The confluence of these events, combined with the current market structure setup and elevated bond market volatility, suggests the potential for significant market moves in either direction over the coming weeks.
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Cross-Asset Volatility — CBOE
Cross-Asset Correlation — CBOE
<aside> <img src="/icons/playback-pause_gray.svg" alt="/icons/playback-pause_gray.svg" width="40px" /> Dec E-mini S&P 500 futures settled at 5846.00 Friday, dropping by 3.00, in mostly lower trade. Combined volume was 1,369,934, with the Dec contract seeing 1,368,245 done. Across all maturities, open interest fell by 10,244 (0.47%), with Dec dropping by 11,429, or 0.53%, to 2,147,311.
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<aside> <img src="/icons/judicial-scales_gray.svg" alt="/icons/judicial-scales_gray.svg" width="40px" /> Option trading centered around the Oct E4A 5890 calls with 6,006 changing hands and the Oct E5B 4900 puts with volume of 38,513. In Dec options, the most actively traded call was the 6100 strike with 3,679 changing hands, and the 5500 put leads with volume of 1,831. Calls with the highest open interest are the Dec 6000 strike (24,551), and for the puts are the Nov EW3 4525 strike (63,839).
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<aside> <img src="/icons/swap-vertically_gray.svg" alt="/icons/swap-vertically_gray.svg" width="40px" /> E-mini S&P 500 implied volatility ended the session up as the 30-day at-the-money added 0.41% to close the day at 15.89%, a one week high. Historical volatility (30-day) ended the day at 9.64%, higher by 0.0081%. The volatility spread (30-day, IV-HV) closed the session at a one month high of 6.25%, having rose by 0.4010%
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