Stocks finished higher for a second day in a row on Tuesday, but in this unconvincing fashion, with big intraday swings all day long. Given the importance of today’s festivity, it seems that volatility is too low since nobody knows what will happen. The one clear thing is that reciprocal tariffs will be put in place; one could assume that tariffs will likely be equal to or maybe slightly less than the tariffs currently imposed on US exports.
Trump keeps talking about how lenient he is, so does that mean that if Mexico, let’s make up a number, has tariffs of 50% on US goods, Trump will be a nice guy and charge a 40% tariff on goods from Mexico? No one knows, and from what I have been reading, it doesn’t seem like any decision has been made yet, with the final decision coming this morning.
Given this level of uncertainty, a VIX at 22 and a VIX 1-day at 20 seem too low, given that we have seen these values higher ahead of big economic reports or Fed meetings. I would argue that today’s events will be more significant and lasting than a 25 bps rate cut/hike, or hot/cold CPI report.
Assuming the news is held all day and not released until 4 PM, I think the VIX 1 day moves higher and is closer to 30 than 20. Then, we have to get the job report on Friday, and Jay Powell is speaking later that day.
So, I think implied volatility will rise much more throughout today and tomorrow. It also looks like the S&P 500 futures are squeezing out a rising wedge or bear pennant pattern. I don’t think it matters which it is because the outcome is likely to be the same, suggesting that the next move in the S&P 500 futures lower starts from current levels, undercutting and dropping below the 5,640 level and eventually breaking 5,520.
I guess we can see what happens…