MARKET WRAP

As expected, the Fed kept rates steady and reiterated their expected path of two more rate cuts this year. Equities reacted well to the lack of surprises. For the day SPX +1.1%, QQQ +1.2% and IWM +1.6%. Those moves essentially erased yesterdays selling and put the SPX back at the upper end of this week’s roughly 100 point range. Treasuries were lower on the news (or lack thereof) with the 10yr yield now 4.25%. Oil and gold were both up about +0.5%. Implied volatility continued its compression. The VIX closed 19.90. (Something we mentioned was possible post Fed. What that could mean for next few days at the bottom of this email).

• RiskReversal Pod: Mixed signals from economic data, Plus NVDA, TSLA and more.

• MRKT Call: The Fed’s tough spot politically, Gold, Dollar/Yen, and how long it’s been since a “real bear market”.

MRKT MATRIX: March 19, 2025

Today’s Top Stories:

• Dow rallies 400 points as stock market comeback from recent rout gets an assist from the Fed (CNBC)

• Fed decision recap: Powell says tariffs could delay progress on lowering inflation (CNBC)

• Market Likely to Endure Deeper Selloffs Before Support From Trump, Fed (CNBC)

• Bank of America’s CEO says economic growth is ‘better than people think’ and the Fed should stay on hold (CNBC)

• Private Equity Firms Are Getting Rid of Their Equity (Bloomberg)

• Nvidia CEO Says AI Computing Needs to Surge 100-Fold (WSJ)

• Tencent Quickens AI Spending After Sales Grew Fastest Since 2023 (Bloomberg)

• Elon Musk’s X Raises Almost $1 Billion in New Equity Funding (Bloomberg)

Today’s MRKT Call is Presented by CME Group

Fed Decision on Tap - How the Markets Will React

The show begins with a discussion on today’s FOMC meeting and the political environment Powell finds himself. Into a look at S&P e-mini chart vs the 200 day moving average. META at its 200 day, The US10Y, Crude and XOM. Bitcoin (BTC) Gold, Copper. (20 year chart of copper vs SPX.) Also, a look at UAL and airline stocks after their severe correction. Also:

• Call of the Day: TSLA

• Earnings analysis via John Butter’s most recent report and Street buy ratings 

• Checking in on David Rosenberg’s latest report on falling US equity allocations vs international

• Your Questions:

  • The Dollar vs Yen (with DXY chart)

  • Young investors have never experienced a “real bear market”. 

  • What’s worse a bear market or the Luka trade?

  • The DFS and COF merger.

  • Is TGT basing?

Click here to access all of the charts mentioned in today’s MRKT Call.

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Today’s RiskReversal Podcast is Presented by Betterment and iConnections

One Step Forward, Two Steps Back For Markets

Guy Adami and Dan Nathan discuss the anticipation surrounding Federal Reserve decisions on March 19th, examining their potential impact on the market. They delve into the recent volatility in the S&P 500, noting significant sell-offs and the broader economic implications. The episode also covers geopolitical tensions, their influence on oil prices, and the mixed signals from economic data. They address the ongoing narrative around Federal Reserve policies, including discussions on interest rates, inflation, and the potential for a 'grand deal' involving Treasury Secretary and the Fed.

The conversation transitions to sector-specific performances, particularly focusing on Nvidia's developers conference and Tesla's stock movements amid global and market pressures. The episode concludes with a forward-looking perspective on market reactions to upcoming Fed commentary and data releases.

• Timecodes

• 0:00 - Market Volatility

• 11:45 - NVDA

• 19:30 - TSLA

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What’s Next?

There’s plenty of economic data and earnings reports ahead over the next two days, but a major factor post-FOMC may be the recent VIX decline into Friday’s large quad-witching expiration.

The VIX closed today at XXX, down sharply from near 30 last week. This kind of rapid volatility compression can often become self-reinforcing, especially into a large expiration. The reason? Many market participants who bought expensive protection due to expire on Friday quickly turn into sellers to limit losses on those hedges. The same high-volatility environment that fueled large daily and intraday swings can just as quickly reverse into a more controlled market. Additionally, hedges by market makers against those puts are quickly unwound, providing an extra boost of buying as stocks drift higher. Here’s more detail on how this could play out:

Options Dynamics for the Rest of the Week:

• If the SPX grinds higher into Friday, it will likely encounter heavy overhead supply, particularly around key round numbers like 5700, 5750, and 5800, but market makers will be behind some of that move higher. Puts they are short below are rapidly losing value and as they have become overhedged vs those puts. They are buyers of the indices if it goes sideways or higher.

• If the market reverses lower into Friday, implied volatility is likely to tick higher, but the magnitude will depend on how deep the decline goes:

  • A move to 5600 likely won’t trigger much panic, and SPX could even stabilize around that level into Friday’s close. There are buyers there.

  • A drop below 5565 could introduce more volatility, leading to whippy price action around that level.

  • A break below 5500 would put the market back in a high-volatility environment, likely pushing VIX back into the mid-20s with large intraday swings becoming the norm again.

Bottom line: The most likely market dynamic over the next few days is a grind higher, with pinning action possible near this range. That may severely limit intraday moves versus what we’ve grown accustomed to over the past three weeks. It also means there’s likely a bid below on small sell offs. HOWEVER, that dynamic assumes SPX is above 5565 or so, while below that things get more complicated. 

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