Key Takeaways
- Stocks rallied again; volatility hovers near key historical average
- Earnings strong but second quarter guidance signals possible slowdown
- Trade talks and inflation data may influence market direction soon
Indices posted a second consecutive week of gains as stocks continued their recovery from the April lows that followed “Liberation Day” tariff announcements. The S&P 500 gained 1.5%. Tech stocks were strong with the Nasdaq Composite gaining 2.2%. The biggest winner for the week was the Russell 2000, gaining 3.2%, while the Dow Jones Industrial Average added 1.2%.
One of the most important developments and things I’ve repeatedly discussed here is the VIX. Market volatility has a historical average of right around 16. If you’re unfamiliar with what the VIX represents, it’s a way of calculating the expected move in the S&P 500. There’s what’s known as the “Rule of 16” which means if you take the current VIX and divide it by 16, you get the expected move for the day. Therefore, a VIX of 16 means investors can expect the market to have a roughly 1% expected daily move. In the premarket, VIX is trading just over 17.50 and is up from Friday’s close, but we are hovering in a range where we could easily get to 16. I think the question for the market is, what ultimately gets us to that 16 level?
With first quarter earnings pretty much in the books, earnings growth looks like it came in around 13%. The Magnificent Seven stocks turned in a particularly strong performance with growth of nearly 28% as overall tech growth was also strong. The question now becomes, what comes next. If I had to apply a theme to first quarter earnings it would be strong but hedged moving forward. With tariff policy still up in the air, many companies offered nuanced guidance. In fact, according to FactSet, second quarter earnings are currently forecast to come in at 4.9%, which is down from forecasts of 9.3% back in March. Therefore, I think as we get closer to second quarter earnings, markets could become more volatile.
Speaking of earnings forecasts and tariff policies, Treasury Secretary Bessent, Commerce Secretary Lutnick, and Trade Representative Greer are in London to meet with Chinese Vice Premiere He Lifeng and other Chinese trade officials. The trade talks come shortly after President Trump and President Xi held a phone call aimed at deescalating trade tensions between the two nations and ahead of next month when President Trump’s tariff pause is set to expire. The talks are expected to last at least a couple days and this is something worth monitoring.
We have a few companies reporting earnings this week, though they are what you might consider second-tier names. GameStop reports after the close tomorrow, then later this week we’ll hear from both Oracle and Adobe.
The economic calendar is slightly more interesting. On Wednesday, the Consumer Price Index (CPI) is due out, followed by the Producer Price Index (PPI) on Thursday. Also, there will be a 10-year note auction on Wednesday and a 30-year bond auction on Thursday. Treasury auctions aren’t something I’ve typically discussed in the past; however, given the uncertainty around trade policy, inflation and economic growth, these events may prove more important than they have historically.
For today, I’m watching VIX to see if this morning’s move higher reverses itself. I’m also watching Apple. Today is the beginning of Apple World Wide Developer’s Conference (WWDC) and the stakes for Apple are arguably high as the company is increasingly seen as falling behind its competitors with respect to Artificial Intelligence. While expectations of any new device announcements are low, investors are looking for Apple to offer software updates they can get excited about. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.