The equity market exhibited a mixed performance today, characterized by the Dow lagging behind while small-cap stocks led the charge. Both the S&P and Nasdaq saw modest declines ahead of what is anticipated to be a significant day for market events tomorrow. A drop in the morning was reportedly fueled by headlines from the Wall Street Journal suggesting that Russia may be plotting to send incendiary devices on planes destined for the U.S., as indicated by Western security officials. However, this apprehension was quickly countered by a buying-the-dip (BTFD) sentiment among investors. A dominant theme in today’s trading was profit-taking on the so-called “Trump Trade,” as the recent performance of stocks associated with Vice President Kamala Harris’s initiatives had been notably strong.
The volatility index (VIX) concluded the day at an elevated level, signifying increased market uncertainty. The term structure of volatility is extremely inverted, reflecting heightened concern as traders prepare for extreme event risks coming this week. This marks the longest duration that the VIX has remained above its 200-day moving average since 2019, indicating a shift in market sentiment. For the first time since early 2019, speculative traders in the VIX are net long on futures, suggesting that the current wave of uncertainty may extend beyond mere election-related apprehension, raising the possibility of a more systemic issue within the market.
The largest tech companies faced declines today but managed to find temporary support after significant losses in recent sessions. The chaotic conditions in the bond market experienced last Friday once again drew attention, leading to a realization that disappointing payroll data would likely push yields lower. In response, Treasury yields fell across the board, with the 2-year note decreasing by 3 basis points and the 30-year bond dropping by 8 basis points, although yields remained slightly higher compared to last Thursday’s levels. The 10-year yield settled back at levels not seen since before the payroll report, emphasizing the market’s ongoing adjustments to economic data.
The U.S. dollar continued its downward trajectory, seemingly unaffected by the frantic purchasing observed post-payrolls. This trend might signal continued challenges for the dollar in the wake of recent economic concerns. Meanwhile, the Mexican Peso has suffered significant depreciation, reaching its lowest points since September 2022. This can be interpreted as yet another element of the “Trump Trade,” suggesting that market dynamics tied to geopolitical narratives are significantly influencing currency movements.
In the commodities market, gold remained stable above a crucial support level around $2730, despite the overall turmoil in the financial landscape. Bitcoin also retraced from earlier record highs, currently finding support in the $67,000-$68,000 range. Oil prices experienced a rally, with West Texas Intermediate (WTI) climbing back up toward $72, recovering from a recent drop amidst ongoing tensions between Israel and Iran. The irony lies in the fact that despite rising oil prices, pump prices are testing multi-year lows, a development that appears suspiciously timed ahead of the upcoming election.
As traders approach tomorrow, questions linger regarding U.S. sovereign risk and market reactions in response to potential shifts in government control. With recent advancements in favor of a divided government, there will likely be market deliberation on whether this could mitigate fears about future economic challenges. Overall, the mixed signals from equity markets, bonds, foreign exchange, and commodities underscore a complicated environment that reflects both investor sentiment and geopolitical concerns as events unfold.
