12/08/23 09:09 AM EST

Will Equities See a Surge in Volatility?

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

The VIX stands at a quiet 13, comfortably below its 30-plus-year mean of 19.7 and pre-pandemic levels. In contrast, the MOVE index, at 129, is about 120% over its long-term norm, having climbed 17.5% since November 23.

Rates and currency markets have outpaced equities in volatility this year, posing the question of today’s bonus chart: Which will adjust — will equities see a surge in volatility, bringing the SPX down to align with the MOVE's ascent, or will Treasury volatility ease as the bond market benefits from end-of-year rebalancing?

The curve's shorter end has found some equilibrium, there is room for a little more downside, though not due to anticipations of further rate reductions. The Fed’s stance is steadfast on maintaining higher rates for the foreseeable future — this is the new status quo. Higher for longer is not a drill. Given this, there’s a reasonable argument that the SPX will retrace part of its November gains, potentially bridging the gap displayed in the chart's "alligator jaws."

Learn more about the Market Situation Report written by Tier 1 Alpha.