Amidst a backdrop of receding inflation in the US, currently at 3.2%, and a palpable shift in the market’s mood towards a more accommodative stance on the Federal Reserve’s interest rate trajectory, the US equity futures have surged. Adding to this wave of optimism is the Chicago Board Options Exchange (CBOE) Volatility Index, affectionately known as the ‘VIX,’ hitting multi-month lows, currently standing at 12.65. The VIX serves as a barometer for the market’s anticipation of volatility in the coming 30 days, typically displaying an inverse relationship with S&P 500 returns. Riding this positive wave, the S&P 500 futures have notched up five consecutive weeks of gains.
If the VIX holds its predictive sway, these winning streaks appear destined to endure. Just a month ago, the CME FedWatch Tool hinted at a mere 13.7% likelihood of a rate cut in the March meeting next year. Fast forward to today, and that figure has ballooned to nearly 40%, injecting an extra layer of intrigue into the current market sentiment. Against the backdrop of impending pivotal data releases on inflation and Non-Farm Payrolls in the next two weeks, the VIX emerges as a captivating instrument to monitor, offering insights into the market’s sentiments as it navigates the ever-evolving landscape of the US economy.
Sources: CME Group, Forbes
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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