Stock market today: S&P 500 falls as government shutdown, trade jitters persist
As noted on Monday morning, the VIX 1-Day indicated a 1.6% move—and that’s precisely what we saw. These aren’t any magical predictive powers on my part; they’re simply market mechanics at work. So, while the market did rise and some might believe “we’re so back” and ready to “run hot” again, I’d caution that this may not be the case. I noted in the write-up:
One would think that once the VIX 1-Day stabilizes, the stock market will also steady, and the rally would likely stall. A VIX 1-Day reading of 25.7 suggests a potential move in the S&P 500 of about 1.6%, which would take the index right up to the 6,650 region.
The question, of course, is what comes today—and that’s not as easy to answer. Given that the VIX 1-Day closed at 14.7, a more modest 90-basis-point move is being priced in for tomorrow. The only issue is that Jay Powell is scheduled to speak this morning around 11:30 a.m., and it’s quite possible that implied volatility rises into that engagement. If volatility rises ahead of Jay Powell or after, for that matter, the stock market should decline.
Technically, the S&P 500 reached its 20-day moving average on Monday but failed to hold above it.
Additionally, the index saw a gap higher at the open, following a straight-line drop into Friday’s close. These types of patterns tend to be unstable and are often retraced fairly quickly. Given that volatility has largely reset and the index failed at the 20-day moving average, there’s a good chance Monday’s rally gives back its gains, resulting in that gap being filled over the next couple of days.
In the meantime, with the bond market closed, I have no idea how credit spreads would have traded, nor do I know where overnight funding costs would have settled. So, delving any further into Monday’s price action is pretty much useless.