The View from 5th Avenue

The View at Two – 25 January 2021

Mega Move Monday…This was an actual thing in 2020. Typically, the two weekend days allowed for a significant build-up that caused some decent volatility come Monday morning. But, the energy fizzled over the course of the week and left us with Flat Fridays (we heart alliteration). Today hasn’t given us mega moves per se, but the volatility is striking. The S&P is currently flat after being down almost -1.5% and opening only slightly higher. Nothing ominous, but today does have some faint echoes of the more worrying days of last year ---a few more reasons to be cautious. The race is on between the current vaccinations and the various mutations. Tech's recent resurgence (along with the WFH ETF's daily new highs) had already made clear that beneath all the ATHs lies concern that vaccine rollouts/ further stimulus isn't going to spark the perfect recovery that has been priced. How to fight the latter involving possibly onerous tactics is what the market does not like. The past few weeks have seen Nasdaq actually outperforming Russell in old-school fashion (this morning NQ o/p RTY by 80bps, was as high as ~175bps earlier), with some of that “renormalization” trade backing-down and the UST curve bull-flattening early. We know it’s a busy earnings week (25% of the S&P 500 reporting -- 39% by market value) and with the Fed on Wednesday there’s plenty still to play for, but for now the headlines are concerning and investors gravitating to the playbook they learned the hard way last year. Below the divergences between VVIX and VIX which should be closely observed. Last time was a year ago....

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