Our timing indicator based on the VIX shows the VIX as "too low" relative to where our model says it should be based on recent realized volatility. One could certainly argue the VIX should be higher still, given high individual stock volatility and the historically low stock return correlations.

As @sellingtheta.bsky.social continues to point out, the historically low correlations among S&P 500 constituents is doing a HUGE amount of work in keeping overall index volatility (e.g. VIX) low despite rising volatility in most stocks and sectors. Just published this chart for clients.

Some attention today to the fact that refining margins (crack spreads) have surged to multi-year highs. This means gasoline and especially diesel are much more expensive relative to crude oil than normal. Also means refiners profits go up - the CRAK ETF is up 2% today and 11% in the last 2 weeks.

Why have inflation, rates, and geopolitics not hurt stocks so far this year like you might think? I discussed my view on that question in my recent interview with David Lin, here is the 2 minute answer:

What matters a bit more is refinery capacity, which remains limited (and Russia's is falling by the day). So refining margins (crack spreads) remain very high, meaning gasoline and diesel prices are falling less than crude oil prices have.

One reason is that shelter (rent) is a big component (35%) of the CPI, and its growth rate has been falling. The rent component is always heavily lagged vs current market prices, and market rent growth has been quite low lately based on Zillow's home rent index -- now lower than pre-COVID.

Market believes that inflation pressures outside of energy and tech hardware are declining, so now that oil has come down (mostly), the next-12-month expected CPI inflation rate (from CPI swaps) has plunged to near 2%.

A big reason spending growth has held up much better than income growth is a rapid decline in saving from income. The personal saving rate has steadily dropped, now at 3.0%, near the lowest levels on record (except for 2022). This boost to spending naturally is not sustainable long-term.

Median nominal wage growth (from Atlanta Fed Wage Tracker) has been high but coming down rapidly, currently around 3.5%, similar to 2016-2019 levels. Adjusting for core inflation, however, pushes real wage growth near zero, in line with growth in real disposable personal income growth.

Total employment growth (non-farm payrolls) has slowed significantly (near 0% year-on-year), but total nominal income growth has held up (4-5%) thanks to higher wage growth (part of inflation). Lower supply of workers is keeping wage growth higher.

Macro is holding up on a nominal basis, and somewhat on a "proportional" basis, but less so on a real basis. Nominal GDP is being helped by inflation, while real GDP and real consumption growth is ok but not great (~2%), helped by productivity and reduced saving.

Semiconductors are up today, with SOX up +3% but off its morning peak at the moment. The SOX is still super-volatile, with 80% annualized 1-month volatility, meaning 4-5% close-to-close moves on average. The SOX index has 30 constituents with a collective market value of $14.9 trillion.

Both stocks still have extraordinarily high revisions to earnings estimates, rising at double-digit percentages *per month* lately. The stocks have skyrocketed, giving them strong momentum, but have pulled back somewhat lately for those waiting to buy a dip.

As others have noted as well, the level of dispersion in equities is very high, including at the sector level. The cross-sectional standard deviation of daily sector returns over the last month has been more than 1.1%, back at the tariff-shock peak of April 2025.

The news of Apple's big price hikes gave a sharp reminder of the drastic shift in Technology hardware pricing. After many years of mostly deflation in tech hardware (after adjusting for quality), we are now seeing rapid (10%+ year-on-year) price increases.

Starting off as another "rotation" day: selling Tech and related areas, buying everything else. Health Care leading today by a good margin, with strength across the board.

SOX index opens below yesterday's low, down -4.6%. Volatility in Semis has been surging, a clear tactical risk to markets given the focus on Semis. Earnings are still super-strong, but leveraged trading is driving things short-term and can cause big moves, particularly around index rebalancing.

Also notable how the former leaders in the Magnificent 7 have lagged badly for some time now, and down nearly -14% from its May peak. The MAGS ETF is at its lowest since early April and now unchanged since early September.

Our bottom-up data show that earnings estimate revisions by analysts in the stocks in the S&P Homebuilders ETF have been far weaker than the S&P 500 (and still net negative in absolute terms). So the recent rebound in performance has only made relative valuation even worse vs historical average.

Homebuilders are up today, but the backdrop remains wobbly for them. New home sales reported today were down and well below consensus, keeping the 3-month average at the lowest since Jan. 2023. Mortgage rates easing today but still elevated, affordability index still far below pre-COVID levels.

This would be one of the largest ADR listings in history, and further add to the new equity supply coming out to take advantage of colossal investor appetite for AI hardware stocks. Our MAER tool shows SK Hynix still getting large and broad-based EPS estimate increases, keeping its forward P/E low.

Oil prices down again today, with the front-month WTI future down to $71/bbl (from earlier peaks around $110). This is because more ships are moving through the Strait of Hormuz, though which ships can do so (and for how long) and the fees (not tolls!) they pay remains uncertain.

Market's lower this morning but coming off the opening lows. Volatility has been increasing, particularly in the leading Tech-related indices like the NASDAQ-100. Annualized 1-month vol is up to 30% for NDX, highest since the tariff shock last year. S&P 500 vol is up but notably less so.

Volatility in the AI/Semis space has been increasing, and lots of signs of froth: new equity offerings and surging volume in leveraged ETFs like the 3x Semiconductor (SOXL) The weakness in SpaceX yesterday after its big debt offering may be worrying some people too.

Looks like the bid at $165 for SpaceX (underwriters?) that had been in place today broke down Could put pressure on risk sentiment for a bit.

Stocks not doing too much today, though small-caps are outperforming large-caps by a pretty good margin. The drop in oil is not helping much, which may be partly due to weak trading action in SpaceX. It is down -10% today and -25% from its high, in danger of breaching its first-day range.

Our indicator is still net bullish (green line in chart above 50), but far from the max bullish (90-100%) readings seen in H2 last year. So this move looks like a “lower high” in our indicator (and the overall model too) that is diverging from the recent new highs in the indices. 3/

Stocks recovering from yesterday's drop after Trump signed the MOU with Iran yesterday, for whatever that's worth. Bond yields easing somewhat after yesterday's jump, but the yield curve has flattened pretty sharply lately as the prospect of Fed rate hikes has increased.

This is what a Fed surprise to the bond market looks like. Clearly markets were not expected the FOMC to shift as hawkish as it did. Given recent data, there are some decent arguments for a hike, though it would have relatively little impact on the main drivers of inflation.

The Fed meeting is today, the first under new Chair Kevin Warsh, so it will be watched for indications of what kind of chair he will be. The dual mandate is inflation and employment. The Fed may be looking at something like this chart for the employment side: labor conditions near "neutral"