The Week that Was: October 11 to October15
A concise weekly overview of the U.S. equities and derivatives markets
Last week (October 11 – October 15), Big Banks kicked off earnings season on a positive note. The S&P 500 Index is now higher on the year by 19%. Core Consumer Price Index (CPI) data, which excludes food and energy, rose 4% year-over-year in September. Additionally, the Producer Price Index (PPI) for last month was slightly below the consensus estimate, possibly indicating that supply chain bottlenecks are starting to subside.
The Federal Open Market Committee (FOMC) meeting minutes pointed to plans to slow monthly asset purchases, most likely later this year. The committee also highlighted the potential to keep short term interest rates very low for the next few years. However, despite the FOMC’s outlook, the market (Fed Fund futures) is pricing in a probable hike late next year.
Commodities continued to climb with Crude Oil chalking up eight straight weekly gains. Copper also had its largest weekly jump in nearly five years. In terms of S&P 500 Index sector performance, the Materials and Consumer Discretionary sectors led and Technology and Industrials were up more than 2%. Health Care and Consumer Staples were the laggards, gaining approximately 0.85% each.
Finally, weekly jobless claims fell to the lowest levels since the pandemic disrupted the global economy. The COVID-19 Delta variant spread has slowed and the White House announced plans to ease travel restrictions, which bolstered travel-sensitive companies. On the flip side of the ledger, the University of Michigan Consumer Sentiment Index reading fell near multi-year lows, but expectations called for a modest move higher.
- U.S. Equity Indices climbed higher last week.
- S&P 500 Index (SPX®): Increased 1.8% week-over-week.
- Nasdaq 100 Index (NDX): Increased 2.2% week-over-week.
- Russell 2000 Index (RUT℠): Increased 1.48% last week.
- Cboe Volatility Index™ (VIX™ Index): Measured between 20.81 and 15.72 last week and closed at 16.30, lower by 2.5 vols week-over-week.
- SPX options average daily volume (ADV) was about 1.5 million contracts per day, slightly below last week’s average of 1.62 million contracts per day. The one-week at-the-money (ATM) SPX options straddle (4470 strike with a 10/22 expiration) implies a +/- range of about 1.1%. The weekly ATM straddle settled on a 10.1% implied volatility.
- VIX options ADV was about 460,000 contracts last week, which was above the previous week’s ADV of 420,000 contracts. The VIX options call-put ratio was 1.2:1.
- RUT options ADV was 59,500 contracts, compared to an ADV of 57,400 contracts the previous week.
Across the Pond
- The Euro STOXX 50 Index increased 3.1% on the week.
- The MSCI EAFE Index (MXEA℠) increased 2.4% week-over-week and the MSCI Emerging Markets Index (MXEF℠) increased 2.2% week-over-week.
Charting It Out
Observations on VIX futures term structure
- The VIX Index closed lower by 2.5 vols week-over-week. Over the past two weeks the VIX Index has declined nearly 5 vols.
- The front end of the VIX futures term structure continues to steepen. The spread between October and November VIX futures settled at 2.80 wide. A week prior that spread was 1.85 wide. October VIX futures fell 2.60 and the November VIX futures contract declined 1.65.
- The standard October VIX futures and options will expire on Wednesday, October 20.
VIX Futures Term Structure
Source: LiveVol Pro
- The U.S. 10-year Treasury Yield declined from approximately 1.61% early in the week to lows of 1.51% intraday Thursday, before ultimately ending the week around 1.58%, lower by 2 basis points.
- The S&P GSCI continued its ascent, gaining another 2.6%. Crude Oil (WTI), which is now priced above $82 per barrel, added 3.6% last week. However, Copper and Lumber led the charge, gaining 10.6% and 7.0% respectively.
- Natural Gas (Henry Hub) declined from highs and closed the week down 2.4%. Soybeans, Cotton, Cocoa and Orange juice also fell.
- The U.S. Dollar Index consolidated as interest rates chop between 1.5% and 1.6%. The recently released Federal Open Market Committee (FOMC) meeting minutes indicate a likely willingness to begin the tapering of monthly asset purchases in November.
- The FOMC will meet on November 2 and 3 but will not hold a press conference or provide an updated Summary of Economic Projections until the December 14-15 meeting.
- In a repeat of the previous week, Big Tech leaders were higher across the board, with the exception of Facebook.
- Facebook is set to report its quarterly earnings on October 25. There are questions about the company’s ability to maintain and grow advertising revenues.
- Tesla gained 7.3% last week. Amazon added 3.7% and Microsoft added 3.2%. Apple climbed by 1.4% and Alphabet shares were up 1.1%.
- Bitcoin (BTC) prices were approximately $54,500 on Friday, October 8. BTC trended higher throughout the week and traded up to $61,300 on Friday, October 15. That’s the highest price since mid-April. All-time highs are near $65,000.
- BTC’s market cap is now $1.2 trillion, constituting 38% of the overall crypto market. BTC has meaningfully outperformed other cryptos in October.
- Last week, BTC prices exceeded $60,000 for the first time in six months. BTC continues to outperform, and the market seems optimistic about the prospect of a BTC-based ETF gaining SEC approval.
- On Friday, October 15, Ethereum (ETH) was trading around $3,850.
- ETH traded as low as $3,350 on Sunday but climbed to $3,800 by the end of the work week, up 6.3% on the week. ETH is now about 11% below all-time highs.
- ETH market cap is $456 billion, making up about 15% of the overall crypto market.
- MSCI estimates that there is roughly $7.1 trillion in market cap tethered to stocks of companies holding cryptocurrencies.
- The leading cryptocurrencies have been on a tear in October, led by BTC. The top crypto has gained approximately 40% month-to-date. ETH and Ripple have performed well but lagged. Bitcoin’s market leadership is in part driven by comments from SEC Chair Gensler and the potential for an approved BTC-based ETF in the U.S. The market seemingly anticipates a futures-based ETF, which has led to dislocation (significant premium) between the spot market for BTC and the near-term futures.
Growth in Cryptocurrencies
Source: The Daily Shot
- The 7-day average COVID-19 infection rates in the U.S. decreased to approximately 86,200 on October 15, compared to approximately 99,700 a week prior. New COVID-19 cases have fallen by nearly 45% since early September.
- 58% of the U.S. population is fully vaccinated against COVID-19 and 66% have received at least one dose of a COVID-19 vaccine. For just those 12 years and older the numbers are 67% and 77% respectively. On October 14, the FDA recommended Moderna boosters for those 65 years or older and high-risk adults.
- The World Health Organization (WHO) is creating a team to investigate the origins of COVID-19.
COVID-19 Cases in the U.S.
Source: The New York Times
Tidbits from the News
Inflationary pressures have spread globally since Spring 2020. According to the chart below, 5-year expectations for inflation have shifted higher since late September. In the U.S., the Consumer Price Index (CPI) jumped 4% year-over-year. Higher prices for food and rent accounted for half of the gains. Rent is approximately 30% of the CPI calculation, so it will be closely watched going forward.
5-Year Global Inflation Expectations
Source: LPL Research and Bloomberg
- A record number of Americans quit their jobs in August, led by the Leisure industry, which is typically a reflection of a strong U.S. economy. Historically, people are willing to stay in their jobs during difficult economic times. There’s also currently a record 10 million job openings in the U.S. The Retail and Leisure/Hospitality industries continue to struggle with labor shortages.
Number of Americans Leaving Their Jobs
Source: St. Louis Federal Reserve and Chartr
The Week Ahead
- Data to be released this week: Industrial Production and Home Builders Index on Monday; Housing Starts on Tuesday; Beige Book on Wednesday; Weekly Jobless Claims, Philly Fed and Leading Economic Indicators on Thursday; Manufacturing and Services Purchasing Managers Index (PMI) on Friday.
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Cboe Options Institute Back to School Series
Volatility Spreads – Part One | Tuesday, October 26 at 10 a.m. ET
Cboe Options Institute Adjunct Faculty member Sheldon Natenberg will discuss the characteristics of the most common volatility spreads and how to put them in to practice.
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