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We’ve now had three consecutive Mondays where the VIX 1-Day fell from a high Friday value, leading to an S&P 500 rally of about 1%. The prior two Mondays not only saw rallies but also gave those gains back in the days that followed.
However, on Monday, the VIX 1-Day closed below 9, suggesting that today’s volatility won’t be able to lift stock prices.
Right now, the stock market is in the final days of the dispersion trade ahead of results on Wednesday and Thursday. The Dispersion Index actually rose by nearly 5% on Monday, reaching the same level it was at before the October 10 sell-off.
The Dispersion Index minus the 3-month Implied Correlation Index also rose back to its highs. That spread has now returned to levels last seen in July 2024 and January 2025, with the previous peak occurring in July 2023. I don’t know what the future holds, but each of those prior periods was followed by a sizable pullback.
Meanwhile, we saw the VIX Index fall on Monday while the VIX Constituent Volatility Index rose. This really serves as the best evidence of the mechanical forces currently at work in the stock market.
At 41.50, we’d normally expect to see much more volatility in the market than what we’re seeing right now.
At 41.50, we’d normally expect to see much more volatility in the market than what we’re seeing right now.
Speaking of volatility, gold volatility continues to decline—and so does gold’s price. This really just reinforces how speculative the move in gold was in many ways.
What’s interesting is that gold volatility and the average volatility of S&P 500 stocks seem to move in lockstep.
It’s quite possible that, in the end, gold and stocks are the same trade, and what we’re seeing in gold may soon come to a stock market near us. Who knows, maybe even this week.