Market update – Sept & Oct 2022

Article written in October 2022

💡 Zoom on US markets and VIX in Sept – Oct 2022 💡

📈📉 1. US markets: Ups and downs in line with recession expectations:

The US markets ($SPX500, $NSDQ100) are moving sharply up and down for the past four weeks, with no clear direction. The SP500 reached its lowest point below 3,500 on October 13th, when the September inflation data (CPI) at 8.2% was released, above expectations. The seasonal inflation was at 0.4%, higher than July and August (see Article 1).
However, the market quickly recovered, because well, the Fed had kept saying that they would continue the interest rates to bring inflation back to 2%, so inflation at 8% or 8.2% doesn’t change much for the Fed’s next course of action.
The current earnings season is giving some information on how the US companies are weathering these difficult economic conditions – Microsoft ($MSFT (Microsoft)) and Google ($GOOG (Alphabet)) yesterday reported disappointing figures, highlighting the slowdown in sales while consumers and businesses around the world are cutting back on expenses (see Article 2).

💡 2. US markets: What does the VIX tell us?

One of the indicators I like to follow is the VIX ($VIX.FUT) as it illustrates the market expectations for the next 30 days. The VIX is intimately linked to the SP500 index, and usually, when the SP500 makes a steep move up or down, the VIX would react the opposite way, with a higher amplitude – it would move x3 or x5 the % of the Sp500 move.
However, in the past 4 weeks, it has occurred several times that the VIX actually moves less than the SP500 – example: the SP500 drops 2% and the VIX only increases by 1.5%. Or similarly, the SP500 gains 2% but the VIX only drops by 1%.
This tells us that the big actors in the market remain heavily hedged no matter what happens, and the market momentary swings, being 2% up or 2% down in a few hours, don’t change expectations at all…
I would thus advise not to get carried on by sharp market moves, and stick to a long-term strategy.

🎯 3. US markets – what to expect next? 🎯

✅ FOMC meeting on Nov 1st and 2nd, which may result in another rate hike
✅ October CPI data to be released on Nov 10th

I hope this helps you understand what has happened in the past few weeks.

Thank you and trade safe!

Nico