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S&P 500 and Vix Rally: Is Investor Confidence Fading in 2024?

/ March 30, 2024

The recent surge in the Vix likely reflects its tendency to revert to its mean, rather than indicating an impending market downturn, as suggested by a portfolio manager. In a departure from the norm, both the S&P 500 and the Cboe Volatility Index, commonly known as the Vix, have experienced gains this quarter in the stock market. But does this signal an end to the unusually calm market conditions of late? Probably not, according to insights from Barbara Reinhard, the chief investment officer of Voya Investment Management’s multi-asset strategies and solutions platform. Reinhard suggests that the recent uptick in the Vix from its four-year low in December is likely due to the natural tendency of implied volatility to return to its average. Contrary to the notion that nervous investors are preparing for a market crash, Reinhard argues that feedback from fellow financial professionals doesn’t support this idea. She notes that the Vix, often called Wall Street’s “fear gauge,” remains historically low. While the Vix has increased by 4.3% since the beginning of the quarter, reaching 12.98, it’s worth noting that its long-term average is around 20, according to FactSet data. Reinhard emphasizes the cyclical nature of the Vix, stating in an interview with MarketWatch, “If the Vix is low like it is now, it is more likely to rise over the medium term. But then again, it can remain low for years, as it did between 2012 and 2015.” Meanwhile, the S&P 500 seems poised to achieve a 10% gain this quarter, reaching record highs on Thursday for the 22nd time this year. Despite this, the concurrent rise of the Vix amid relatively stable market conditions adds to the peculiarity of the current situation. Although instances of both indexes rising simultaneously have occurred in recent years, previous occurrences often saw a brief retreat in the S&P 500 along the way. The most recent instance was in the third quarter of 2021, when the S&P 500 saw a marginal rise of 0.2%, juxtaposed with a significant 46% surge in the Vix. This surge largely occurred in September as the S&P 500 recorded its most substantial monthly decline since March 2020, driven by concerns surrounding the spread of the COVID-19 delta variant. Before that, the Vix rose alongside the index during the second and third quarters of 2019, prompted by the Trump administration’s trade tensions with China, which triggered brief selloffs in the S&P 500. The current streak of more than 100 trading days without a 2% pullback in the S&P 500, the longest in about six years according to Bespoke Investment Group, further underscores the current market’s resilience. However, it’s essential to note that while the Vix and S&P 500 typically exhibit a strong negative correlation, this relationship isn’t immutable. The Vix serves as an indicator of implied volatility, reflecting traders’ expectations regarding market volatility in the upcoming month rather than the present volatility levels. Its value is derived from activity in S&P 500 options. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Inflation Signals in Silence: Good Friday’s PCE Data & Closed Markets

/ March 29, 2024

The imminent release of the February personal-consumption expenditures index carries substantial weight for investors, potentially molding expectations regarding future rate adjustments by the Federal Reserve. However, this pivotal data unveiling coincides with the Good Friday holiday, rendering financial markets closed for the day. While U.S. stock exchanges will be inactive on Friday and the Treasury market will close early on Thursday, economic data will still be disclosed as scheduled, given that Good Friday is observed as a market holiday rather than a federal one. Anticipation surrounds the expected data, with economists projecting a continuation of elevated price pressures. Forecasts suggest a 0.4% rise in the headline PCE for February, surpassing January’s 0.3%, while the annual rate is expected to climb to 2.5% from the previous month’s 2.4%. The core measure, excluding volatile food and energy components and preferred by the Fed as an inflation gauge, is anticipated to increase by 0.3% in February, slightly lower than the previous month, with year-over-year core inflation forecasted to hold at 2.8%. Recent upticks in the consumer-price index have instilled apprehension into Wall Street, prompting some investors to recalibrate their expectations for the timing of the Fed’s initial interest-rate cut. Consequently, the forthcoming PCE report is deemed particularly significant, serving to discern whether the preceding inflationary figures signify temporary deviations or herald a prolonged trend of heightened inflation. Although financial markets will be closed, traders will assess the implications of the inflation report upon the reopening of futures markets over the weekend. Their analysis will center on whether the report alters the Fed’s strategy of potentially implementing three rate cuts in 2024. Federal Reserve officials, having kept interest rates steady for the fifth consecutive meeting, maintain their projection of reducing rates by 75 basis points by the end of 2024, as indicated by the latest “dot plot.” Futures traders are currently estimating a 61% likelihood of a 25-basis-point rate cut occurring in June, according to the CME FedWatch Tool. While Monday is anticipated to provide clearer insights into market reactions, some foresee a subdued response due to investors’ tendency to prioritize recent market-moving events over historical data. Analysts caution that a higher-than-expected PCE reading could challenge the narrative articulated by Fed Chair Powell, potentially influencing the timing of future rate adjustments. The conclusion of a month or quarter often prompts portfolio rebalancing by managers, which, despite being anticipated, may still induce price fluctuations in the markets. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Good Friday Trading: What to Expect from the Stock Market

/ March 28, 2024

The Treasury market will close early on Thursday, March 28, in anticipation of the Good Friday holiday when the U.S. stock market will also be closed. Trading in the $27 trillion Treasury market will conclude at 2 p.m. Eastern on Thursday. Despite a brief slowdown earlier in the week, stocks are aiming to wrap up a strong first-quarter rally on a positive note. According to Dow Jones Market Data, the S&P 500 index is set to post a first-quarter gain of around 9.4%, marking its strongest performance in the first three months of a year since 2019. Similarly, the Nasdaq Composite Index is expected to record an 8.6% increase for the quarter, while the Dow Jones Industrial Average is up by 4.8% for the same period, as per FactSet. All three major U.S. stock indexes have rebounded to reach record levels in the first quarter, bouncing back from challenges faced two years ago when the Federal Reserve began raising rates to counter persistent inflation. Despite the Fed’s policy rate being at its highest level in nearly a quarter-century and 10-year Treasury yields hovering around 4.2%, the economy has shown resilience. However, investors are eagerly awaiting signs of a potential shift to rate cuts later this year, with attention particularly on a possible June rate adjustment. While the major stock exchanges will be closed on Friday, investors can expect fresh inflation data with the release of the February PCE gauge, the Fed’s preferred inflation index, which is anticipated to show a monthly increase while maintaining a yearly rate of 2.8%. Investor attention on Friday will also be drawn to Fed Chairman Jerome Powell’s scheduled speech at 11:30 a.m. Eastern. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Beyond the Surface: Delving into Historical Data to Understand Future Stock-Market Corrections

/ March 27, 2024

A group of investment strategists at Piper Sandler has outlined the usual triggers behind stock-market corrections, pinpointing three main factors: rising unemployment, increasing bond yields, or unforeseen global shocks. Despite the S&P 500’s recent surge of nearly 30% over five months, even optimistic market analysts are considering the possibility of a “healthy” correction. However, corrections don’t just happen out of the blue; they typically require a catalyst. To anticipate potential triggers for the next significant downturn, Piper Sandler’s Michael Kantrowitz and his team examined the 27 corrections of 10% or more for the S&P 500 since 1964. Their analysis reveals that each of these corrections was mainly driven by one of three factors: escalating unemployment, climbing bond yields, or unexpected global events. Sometimes, it’s a combination of these factors, as seen in the two equity-market corrections in 1980. So, what’s most likely to spark the next 10% correction? According to Kantrowitz and team, the primary threat to stable markets is rising bond yields. The most recent correction, ending on October 27 with the S&P 500 down 10.3%, was also triggered by climbing yields. In the past two years, stocks’ sensitivity to rising yields has soared to levels near those seen at the peak of the dot-com bubble. This suggests that stocks could react negatively to further increases in long-term bond yields, despite their relative immunity to such rises since the beginning of 2024. Kantrowitz notes that a modest increase in unemployment could actually benefit the market by acting as a counterforce against rising yields. Typically, bond yields decrease during economic slowdowns as demand for defensive assets like bonds rises. Last year, stocks experienced a three-month sell-off as Treasury yields surged. The lowest point of the downturn came shortly after the 10-year Treasury yield hit over 5%, a level not seen in 16 years. Although Treasury yields are once again edging higher in the first quarter, expectations of robust economic growth supporting corporate earnings have so far shielded stocks. The 10-year Treasury note’s yield has risen by 39 basis points since the year began, reaching 4.252%, while the S&P 500 has climbed by 9.4% and 26.7% since the start of the quarter and since October 27, respectively. Similarly, the Nasdaq Composite is up 9.6% since the beginning of the first quarter, closing at 16,452.69 as of Tuesday, while the Dow Jones Industrial Average has gained 4.5%, or 1,670.79 points, to reach 39,388.56. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

The Bitcoin Factor: Citi’s Guidelines for a Balanced 60/40 Portfolio

/ March 26, 2024

In today’s U.S. trading landscape, an alternative investment strategy to the traditional 60/40 portfolio is gaining attention. Alex Saunders and David Glass of Citi propose a portfolio allocation of 55% stocks, 40% bonds, and 5% bitcoin. This suggestion becomes more feasible with the introduction of spot bitcoin ETFs, offering easier access to bitcoin investment without the complexities of custody or liquidity associated with physical or futures-based holdings. While not endorsing cryptocurrencies’ intrinsic value, Citi’s analysts present a compelling argument for incorporating bitcoin. Their analysis indicates that adding a 5% bitcoin allocation can enhance overall portfolio returns without significantly increasing maximum drawdowns. Historical data supports this notion, showing a notable improvement in the Sharpe ratio during the early years. Even after the launch of bitcoin futures and SEC approval, allocating up to 12% to bitcoin could be optimal, catering to investors with varying risk tolerances. However, future expectations are critical. For a 5% bitcoin allocation to be justified, bitcoin would need to deliver returns surpassing those of traditional asset classes. With bitcoin’s recent performance and Citi’s model target, there is optimism for meeting or exceeding these expectations. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Tesla Stock Defies Gravity After Yet Another Downgrade”

/ March 25, 2024

On Monday, Tesla’s stock showed uncertainty, initially dropping after another downgrade before recovering to enter positive territory. By midmorning, its shares had stabilized. This downgrade, the fourth from a major brokerage firm this year, reflects a broader skepticism on Wall Street towards Tesla amid a slowdown in demand for electric vehicles. Mizuho analyst Vijay Rakesh downgraded Tesla, NIO, and Rivian Automotive to a “Hold” rating from “Buy.” Rakesh adjusted Tesla’s price target to $195 from $270. Market reaction was mixed: Tesla initially dropped over 1% in premarket trading but recovered to gain 1.2% in early trading. NIO and Rivian followed a similar pattern, initially down but rebounding by 2% and 1.7%, respectively. Investors may find comfort in the fact that much of the negative sentiment surrounding Tesla’s stock has already been factored in. Analysts’ repeated downgrades have taken their toll, with Tesla shares down 31% for the year. Adding to the pressure are revised delivery estimates, now pegged around 2 million units for 2024, down from an initial consensus of 2.1 million. Earnings forecasts for the year have also been tempered, with analysts projecting earnings per share just below $3 compared to an initial estimate of $3.81. The average analyst target price has dropped to around $203 from $240 at the beginning of the year. Only 33% of analysts now rate Tesla stock as a Buy, the lowest ratio since March 2021. NIO and Rivian face similar challenges, though they enjoy more positive sentiment from analysts, with 60% and 54% of analysts respectively rating their stocks as Buy. The electric vehicle landscape is further complicated by developments from competitors. BYD reduced the price of its Seal sedan by 5%, while Nissan announced plans for a dozen new EV models and a 30% reduction in production costs for its electric vehicles by 2030. Meanwhile, Lucid stock surged nearly 20% following a significant capital injection from Saudi Arabia, highlighting the interconnectedness of stocks within the EV sector. Overall, Tesla and its counterparts navigate a landscape of shifting analyst sentiment, revised forecasts, and intensified competition, making for a volatile trading environment. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

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