Stocks rose today, and are we really surprised? As for the reason, I’m sure the media spent all day coming up with a good explanation. But as I noted last night, I expected a rally of around 1%, given that the 1-day VIX closed near 23. That level implied a move of roughly 1.5%, and we ended up with a 1.58% rally. Amazing how that works.
Of course, the 1-day VIX then collapsed, closing at 12. With Friday’s jobs report approaching, I would expect it to rise again tomorrow. I don’t think it will reach Tuesday’s levels, but I wouldn’t be surprised to see it close above 15.
There wasn’t much magic to the move. S&P 500 futures traded almost as a mirror image of the VIX throughout the day. Once it became clear that the VIX had found a floor, it was only a matter of time before the S&P 500 found its peak, which it did fairly early in the session.
Based on current levels of 1-month implied correlation and single-stock implied volatility, the VIX may actually be a bit too low. However, I would say it is roughly where it should be at this point.
Finally, the 5-year real yield rose by around 2 basis points today, closing at 2.40%. What matters, though, is that the 5-year nominal Treasury yield fell by 8 basis points to 4.68%, implying that 5-year inflation expectations declined by roughly 10 basis points. The 5-year CPI swap confirms that move, falling by about 8 basis points on the day to 2.27%.
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