Market Intro
CNBC: US Markets, Thursday close
The mood on Wall Street has been chipper of late. Even as the 2Yr Treasury hit its lowest-ever nominal yield reading, stocks (SPY, DIA, QQQ, IWM) have edged up to the high end of their range, with the NASDAQ 100 even going so far as to post annual gains.
Spot VIX looks mighty close to dipping below 30.
Thoughts on Volatility
I'd like to highlight some of the reasons for market optimism over the last few days. Not to say that I agree, but it's important to do one's best to understand what the market is seeing.
GoS reminds that a return to normalcy may be nearing. Even in Spain, where restrictions have been exceedingly high, restrictions are gradually subsiding; the nation entered "Phase 0" this past Monday, with a move for most provinces (Americans should think counties rather than states for an analogy) into "Phase 1" right around the corner.
Of course, the reduction in the States will work somewhat differently, but the idea remains that politicians are relaxing requirements and a return to the normal flow of life appears within reach for millions... maybe even billions of people.
From the perspective of jobless claims, we are about to reach the "lows" of mid-March. After a one-week spike between the weeks of March 20 and March 27, the trend appears to be our friend.
Even if the virus itself doesn't morph into some still-more pernicious illness, the economic damage could in fact take on large echo effects. Still, given the pure magnitude of these figures, it may be reasonable to assert that the worst is behind the US economy in terms of the jobless figures. So that of course would be a positive (I'm trying to offer just the positive spin here).
Bear traps and all that, I get it. Is it crazy that the NASDAQ is up for the year? I happen to think so. But markets don't ask any of our permission or ask for our reasoning before they do what they do. In that sense, financial markets are like the sea: it is only left to us to observe and participate as we see fit. There is little point in sternly wagging one's finger at the tape and explaining how this is illogical.
Given the names of the giants listed in the SA news post that have led the charge, there is in fact some semblance of reason. For instance, many have likely engaged in more binge-watching while on lockdown (NFLX). Ordering online (AMZN) as opposed to picking something up on the way home from work becomes more likely.
Given the tremendous weight the names listed above take up within the NASDAQ index, there is some sense in the notion that optimism is somewhat reasonable.
Term Structure
Econoday
Let's consider optimism from another standpoint: some of the lowest VIX readings in the last two months while an historic jobs figure is set to be released momentarily.
The consensus range for the unemployment rate is 12.3% to 18.9% - 6.6 percentage points in width! This is unfathomable. The participation rate level is set to hit all-time lows, and even the most optimistic estimate on the U3 unemployment rate would be significantly worse than the peak of the Great Recession.
And yet, not only does the classic spot VIX measure appear unphased, but also does the shorter-dated VIX9D metric. VIX9D briefly made its way to a vol reading north of 100 at what is (for now at least) the height of the panic. Now we're looking at a sub-30 reading as of Thursday's close.
Financial markets truly are amazing, and news flow such as what we've witnessing this week provides plenty of evidence to that effect.
I'll close with a mention that the virus appears to have not done too much to hamper the animal spirits of investors in US assets as we prepare to conclude the first week of May 2020.
Wrap-Up
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