Rising Bond Yields Put The S&P 500 Rally At Risk

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Stocks were mostly lower on August 6, a day ahead of the jobs report. Surprisingly, implied volatility remained rather subdued, with the VIX 1-Day finishing around 12. I would have expected something closer to 15, but we did not get that. That means the odds of a post-NFP volatility crush sending stocks sharply higher are relatively low.

Cboe 1-Day Volatility Index daily chart from Nov 2025 to Sep 2026, showing spikes near each monthly Job Report release, with current value at 12.37

Bond yields, on the other hand, rose on the day, with the 10-year yield climbing nearly 6 bps to 4.67% and the 30-year yield rising 4 bps to 5.21%. The 30-year still appears to me to be in a position to move significantly higher from current levels.

Currently, the 30-year yield is roughly 8 bps below its recent highs, and if it can get through 5.3%, there isn’t much standing in its way from a technical standpoint. That could open the door to 5.5% or even 5.85%. The ascending triangle pattern on the weekly chart paints a pretty convincing picture, in my view.

The structure of the rally in the S&P 500 looks fairly flimsy, with several gaps helping to push the index higher, including two that followed sell-offs into the close. I simply do not trust charts where the market sells off into the close and then gaps higher the following day. I find those patterns to be rather unstable, and the gaps tend to fill over time. One could imagine that a negative headline or two may be all that is needed to push the index lower and begin filling those gaps.

Dispersion is unwinding rather quickly now that earnings season is wrapping up, which means stocks are starting to trade together more often. While dispersion remains elevated, it could have further to unwind. The only thing missing at this point is correlation, which remains very low.

If dispersion continues to decline, one would expect implied correlations to naturally start to rise, bringing the market back to moving more as one again. I’m not sure what headline will move that process along, but the likelihood of the unwind picking up steam should only grow as earnings season comes to an end.

It is no surprise to me that now that call volumes in the S&P 500 have subsided, the move in the index has as well. The gamma squeeze appears to be over.