The Week Ahead

Last week was an ugly one that saw the SPX officially mark a 10% correction from (the very recent) highs. In fact, this 10% correction was one of the fastest in history. Pretty remarkable considering we have not seen much panic but rather methodical selling all the way down. This past Monday was the closest we saw to carnage and even that day the VIX didn’t get above 30.

We closed the week on a rally that took stocks to the upper band of the weekly range, so tomorrow’s action will be revealing. Before we get into that, let’s have a look at some stories from this weekend:

Over the Weekend:

• Trump’s New World Order Tests the Dollar (WSJ)

  • Investors are more optimistic about Europe while tariffs cloud the U.S. outlook

• The Days of Set-and-Forget Investing Just Ended for Many Americans (WSJ)

  • President Trump’s economic policies are sending investors out of U.S. stocks and into cash, bonds, gold and European defense stocks

• Slumping Stocks Threaten a Pillar of the Economy: Spending by the Wealthy (WSJ)

  • Consumer spending is highly dependent on the affluent, who are highly dependent on the stock market.

• Trump’s war on Biden’s climate policy is creating a new form of EV range anxiety (CNBC)

  • The Biden administration’s climate policies earmarked $5 billion for the buildout of EV charging stations across the U.S. through a program called NEVI, a program within which Tesla is a chief beneficiary.

• After such a relentless market correction, the relief rally faces a high burden of proof (CNBC)

  • At the S&P 500 closing print at 5,638, it had merely bounced to the high of the prior few days and sits below its mid-July peak. From here it needs to climb another 1.8% just to get back to its 200-day moving average.

Now to the upcoming week. Futures opened Sunday evening down slightly, about -0.25%. We actually enter this week at lower implied volatility than we did the week prior. Each of the expected moves below are narrower than last week’s, and the VIX at 22 is lower as well. Last week’s elevated volatility proved correct immediately.

Note that the expected move in SPX prices a retest of Thursday’s lows while the bullish expected move would be about a 40% retracement of the correction. So while volatility is lower, it’s still pricing in significant moves:

Expected Moves:

• SPX/SPY: 2.2% (5500-5775)

• QQQ: 2.8%

• IWM: 2.9%

• TLT: 1.3%

• USO: 2.5%

The economic calendar is headlined by the FOMC on Wednesday where a rate move is not expected but the statement/press conference should give some fresh insight into how the Fed has been looking at recent developments. The other data points listed below are becoming more and more important as investors are wary of any signs of a slowdown.

Also of note, the Nvidia conference Tuesday-Wednesday with the Huang keynote mid-day Tuesday. As we’ve mentioned recently, NVDA stock has seen a sharp rebound the past few trading days, even before the market rebounded on Friday:

Economic Calendar: 

• Monday

  • 8:30am - Retail Sales

  • 8:30am - Empire Manufacturing

  • 10am - Business Inventories

• Tuesday

  • 8:30am - Housing Starts/Building Permits

  • 9:15am - Industrial Production

  • 11am - NVDA/Huang Keynote

• Wednesday: 

  • 2pm - FOMC Rate Decision

  • 2:30pm - Powell Press Conference

• Thursday:

  • 8:30am - Initial Jobless Claims

  • 8:30am - Philly Manufacturing

  • 10am - Existing Home Sales

  • 10am - US Leading Economic Indicators

• Friday:

  • 9:00am - Fed Williams Speech

  • 4 to 4:15pm - Monthly Options Expiry (triple witching)

As we near the end of the earnings calendar, Thursday is one highlight with Micron, Nike and FedEx all reporting after the close:

Earnings (with expected moves):

• Tuesday

  • Premarket: XPEV 11%

• Wednesday 

  • Premarket: GIS 5.4%

  • After hours: FIVE 13%

• Thursday

  • Premarket: JBL 8.2%

  • After hours: NKE 8.4%, MU 10.4%, FDX 8.3%

From an options market perspective there’s an interesting dynamic into Friday as this is a triple/quad witching expiry, where expiring positions could have an outsized effect. We’ll get into more of the specifics later this week but for now there’s danger below 5565 and especially below 5500 (where we’d likely see VIX back towards 30). But if we were to see a rally this week, the options market could assist with a move higher. Put deltas would fade quickly with stock being bought to account for some over hedging.

We will soon see how and if this 10% correction resolves itself (for better or worse) in what is likely to be an exciting week. We’ll be back tomorrow to kick off some great coverage. Stay tuned!

We want to hear your feedback! Reply to this email with any comments or questions