Market Gains May Fade As Volatility Crush Runs Its Course
As noted yesterday, we did indeed get the volatility crush following the CPI report. Nothing new. The move was muted to some degree because the VIX 1D closed at 13.4 yesterday. The rule of 16 implies the market was pricing in an 84 bps move. So I guess it’s no surprise that the S&P 500 rose by a stunning 85 bps. We see the same thing every time the VIX 1D gets elevated heading into an event. The funny thing is, I keep writing about it and reminding everyone.
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The more interesting thing is that Amazon, Alphabet, Microsoft, Meta, Nvidia, and Broadcom did absolutely nothing on the day. Meanwhile, Tesla, Apple, and the other 492 stocks had to do the heavy lifting. I couldn’t begin to tell you what happens tomorrow. But with volatility reset and liquidity being an issue, it wouldn’t be surprising to see a much more mellow day. It might even give back today’s gains, fill the gap from today’s open, and find support around 6,540.
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Reserve balances fell this week to $3.15 trillion from $3.16 trillion. The TGA dropped a bit today, which resulted in a slightly higher reserve balance than what had been tracking earlier in the week.
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The effects of the TGA refill are being felt across the market complex. Overnight repo rates have moved higher, with SOFR rising as well. SOFR is likely to push back above 4.4% on Friday, given that today’s average repo rate was 4.46%.
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Meanwhile, equity repo financing activity has fallen sharply over the past couple of weeks. While it has rebounded off its lows, it still remains well below its highs.
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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. ...
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