Link to Report: Macro Volatility Digest
WHAT STANDS OUT:
- Within equities, we saw notable regional divergence as US and EM equity volatilities declined on the back of the Tech rally while European equity volatility gained due to the resurgence in energy prices. While the VIX® Index fell 0.8 pt wk/wk to 15%, the V2X Index increased 1.3 pts to 16.8%. The spread between the two jumped back to positive (+1.8%) though it’s still trading well below the Mar/Apr highs of 6+% seen at the peak of the Iran War.
- The bid to single stock volatility ahead of earnings can also be seen in the elevated levels of dispersion, with the DSPXSM Index (a 30-day measure of expected dispersion of the stocks within the SPX® Index) jumping to a 6-year high of 47% last week. While the DSPX Index is typically very cyclical – rising ahead of earnings and falling after – it has broken that pattern in recent months with dispersion continuing to rise after the last earnings season (see chart below). In fact, it’s now higher than the peak we saw last April during the “Liberation Day” sell-off, when the VIX Index hit a high of 60.
- Sentiment in US equities remains extremely constructive, with muted hedging demand at the index level and elevated call buying at the single stock level. Retail call buying in the mega-cap Tech stocks jumped to near a YTD high last week, with call buying making up 56% of all retail opening trades on Cboe’s exchanges on Friday.
Chart: DSPX Index at a 6-Year High vs. Muted VIX Index
Source: Cboe
