Cboe Global Markets

The Week that Was: October 25 to October 29

Kevin Davitt
November 1, 2021

A concise weekly overview of the U.S. equities and derivatives markets

Last week (October 25 – October 29), U.S. Gross Domestic Product (GDP) for third-quarter 2021 came in at +0.5%. On an annualized basis, GDP is up 2.0%. Based on that metric, the economy slowed over the past three months as the COVID-19 Delta variant and supply-chain issues weighed heavily. Factory output slowed as did consumer spending on retail and leisure. There are expectations of continued supply chain and labor issues, but also a spending pickup in the fourth quarter as COVID-19 cases continue to decline.

Last week was the busiest week of earnings season. Roughly 55% of the S&P 500 Index constituents have now reported earnings for third-quarter 2021. So far, earnings growth is up 36% year-over-year, outpacing expectations for an increase of 28%. Meanwhile, the Consumer Discretionary sector led the market higher.

The Biden Administration’s Infrastructure and Social bill appeared to gain traction early in the week, but Senator Manchin and Senator Sinema have expressed hesitation with portions of the proposal. The reworked bill does not include higher corporate or personal tax rates but includes a 15% minimum tax on corporations and a 1% tax on stock repurchase programs.

Looking ahead, the Federal Reserve will meet on November 2 and 3, sharing details of its meeting on Wednesday. On Friday, the Bureau of Labor Statistics will release U.S. October jobs data. Analysts are expecting a 425,000 increase in jobs for the month. The September data was well below the original forecast.

Quick Bites

Indices

  • U.S. Equity Indices continued to march higher as October came to a close.
  • S&P 500 Index (SPX®): Increased 1.33% week-over-week.
  • Nasdaq 100 Index (NDX): Increased 3.23% week-over-week. 
  • Russell 2000 Index (RUT℠): Increased 0.3% last week.
  • Cboe Volatility Index (VIX™ Index): Measured between 18.06 and 14.90 last week and closed at 16.26, up 0.8 vols on the week.

Options

  • SPX options average daily volume (ADV) was about 1.38 million contracts per day, slightly below last week’s average of 1.42 million contracts per day. The one-week at-the-money (ATM) SPX options straddle (4605 strike with an 11/05 expiration) implies a +/- range of about 1.2%. The weekly ATM straddle settled on a 11.9% implied volatility
  • VIX options ADV was about 300,000 contracts last week, which was below the previous week’s ADV of 530,000 contracts. The VIX options call-put ratio was 1.06:1.
  •  RUT options ADV was 42,700 contracts, which was in line with the previous week.

Across the Pond 

  • The Euro STOXX 50 Index increased 0.8% on the week.
  • The MSCI EAFE Index (MXEA℠) decreased 0.1% week-over-week and the MSCI Emerging Markets Index (MXEF℠) decreased 2.3% week-over-week.  

Charting It Out

Observations on VIX futures term structure

  • The VIX Index moved slightly higher on the week.
  • The November/December VIX futures spread widened by 0.30 on the week and settled at 2.25 wide. The November VIX futures contract fell by 0.40 and the December VIX futures contract declined by 0.10.
  • On a week-over-week basis, the VIX futures curve is slightly steeper and fell incrementally at the far end.

VIX Futures Term Structure

Source: LiveVol Pro

Macro Movers

  • The U.S. 10-year Treasury Yield declined early in the week, then rallied Friday. Relative to the previous Friday, the yield fell 0.1% and closed at 1.56%.
  • The S&P GSCI lost 0.3% last week, marking the second straight weekly decline. Crude Oil was slightly lower on the week, but natural gas gained 5.4%. Industrial and Precious Metals lost ground. Platinum fell 3%, Copper lost 2.8%, Silver fell 2%, and Gold was down 0.6%.
  • Nearly all U.S. commodity markets advanced in October, except for Natural Gas, Lumber and Ethanol. Oats, Canola, Crude Oil and Cotton led, gaining between 8.8% and 26% (Oats). 
  • Big Tech earnings were the highlight last week. The top five S&P 500 Index constituents are Apple, Microsoft, Amazon, Facebook and Google. They currently account for 22.2% of the index’s performance.
  • Microsoft and Google reported earnings-per-share (EPS) well above expectations, advancing 4% and 5%, respectively, following earnings reports.
  • Facebook slightly exceeded on EPS, but disappointed on revenues.
  • Apple and Amazon’s earnings reports came in below expectations. Both companies pointed to supply-chain constraints and margin pressures.
  • Tesla stock moved significantly higher following the news that it signed an agreement with Hertz to deliver 100,000 electric vehicles to the rental car company.
  • Tesla shares jumped more than 22% on the week and surpassed Facebook in market cap. Tesla is now in the “trillion-dollar club.”

Major Cryptos

Bitcoin

  • Bitcoin (BTC) traded up to $63,600 on Monday. By Friday afternoon BTC was trading around $62,400. On a week-over-week basis BTC gained 2.4%.
  • BTC makes up 45.5% of crypto’s total market cap.

Ethereum

  • ETH trended higher last week, increasing 10.8% week-over-week and trading near $4,420 on Friday – reaching new all-time highs.
  • ETH makes up 19% of crypto’s total market cap.

Digital Asset Industry

  • There is speculation that U.S. regulators may approve an ETH futures-based ETF.
  • The Shiba Inu coin is higher by about 800% this month.
  • There’s also a new “Squid Game” cryptocurrency that was inspired by the Netflix series. SQUID trading started on Tuesday around $0.0124 and moved beyond $5.41 on Friday. That’s a 40,000% jump in three days.

Coronavirus

  • The 7-day average COVID-19 infection rate in the U.S. continues to fall. The rate decreased to 72,500 on Friday, compared to 75,000 a week prior.
  • 58% of the U.S. population is fully vaccinated against COVID-19 and 67% have received at least one dose of a COVID-19 vaccine. For just those 12 years and older, the numbers are 67% and 78% respectively.
  • Booster shots are available for many U.S. adults and plans to roll out vaccines for children ages 5 to 11 are on the horizon.
  • Globally, the 7-day average caseload has been slowly climbing. Parts of eastern Europe are experiencing higher infection rates.

COVID-19 in the U.S.

Source: The New York Times

Tidbits from the News

  • For the past month, the VIX Index has been mostly declining. By contrast, VXTLT, which applies the VIX methodology to the iShares 20Y+ Treasury ETF, has been generally higher. The divergence indicates increasing uncertainty in the longer-term fixed income market and more “normal” volatility currently priced into the S&P 500 Index.

VIX Index Compared to VXTLT Index

Source: LiveVol Pro

  • Third-quarter 2021 earnings season has been mostly positive thus far. The number of S&P 500 Index constituents beating headline expectations is at or near record highs. Stock prices have not reacted much, on average, to the upside. However, in situations where companies have disappointed relative to expectations, the response has been more negative than in any quarter over the last five years.

Earnings per Share Estimates Since 2016

Source: The Daily Shot, JP Morgan

  • The U.S. 30-year Treasury Yield recently fell below the 20-year Treasury Yield for the first time ever. The relationship between shorter dated treasuries has also been flattening. The U.S. debt markets have been roiled by the Federal Reserve’s plans to slow asset purchases, but not raise rates for quite some time. That, combined with more persistent inflation pressure, brought about the first inversion between the 20-year yield and 30-year yield.

20-Year U.S. Treasury Yield Compared to 30-Year U.S. Treasury Yield

Source: Bloomberg

The Week Ahead

  • Data to be released this week: Purchasing Managers Index and ISM Manufacturing Index on Monday; ADP Employment, Federal Open Market Committee Statement and Press Conference on Wednesday; Weekly Jobless Claims, International Trade Deficit on Thursday; Nonfarm Payrolls, Unemployment Rate and Consumer Credit on Friday.

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