VIX Outlook Summary - December 6, 2024

Indices Overview

To provide context for the current VIX outlook, here is a summary of the major indices and their performance over the past week (5 working days):

1. S&P 500 Index (SPX): The latest close is 6,090.27, up by +0.96% over the past 5 days.

2. Russell 2000 Index: The latest close is 1,170.20, reflecting a -0.79% decline over the past 5 days.

3. Dow Jones Industrial Average (DOW): The latest close is 17,366.30, indicating a -1.41% decrease over the past 5 days.

4. Philadelphia Semiconductor Index (SOX): The latest close is 5,061.30, showing a +2.73% increase over the past 5 days.

5. NASDAQ Composite: The latest close is 21,622.25, marking a +3.31% increase over the past 5 days.

As of December 6, 2024, the VIX stands at 12.77, reflecting a mild decrease in market anxiety.

Several factors suggest a moderate increase in volatility over the next 1–2 weeks, including geopolitical instability, economic uncertainty, key earnings reports, and central bank meetings.

1. Geopolitical Environment

Middle East:

• Syria: Rebel forces have captured key cities, including Aleppo and Homs, and have entered Damascus, leading to reports that President Bashar al-Assad has fled the capital. 

Ukraine:

• Military Escalation: Russia has intensified attacks on Ukraine’s energy infrastructure, employing advanced missile systems. President Putin's threats to target Kyiv's decision-making centers elevate global concerns.

• NATO Diplomacy: Ukrainian President Zelensky’s NATO membership push at the December 10–11 meeting could heighten tensions.

South Korea:

• Martial Law Incident: President Yoon Suk Yeol briefly declared martial law, citing national security threats. Though swiftly rescinded, it led to significant domestic unrest and calls for impeachment.

• Impeachment Proceedings: A parliamentary vote on December 7 could lead to a leadership vacuum, adding to political uncertainty.

Romania:

• Annulled Presidential Election: The Constitutional Court annulled the December 1 election due to alleged Russian interference. This raises concerns about the country's political direction and stability.

• Parliamentary Fragmentation: The rise of far-right sentiments complicates Romania’s political landscape, with potential EU and NATO implications.

2. Global Economic Environment

Major Data Release - November Employment Report:

• Nonfarm Payrolls: The U.S. economy added 227,000 jobs in November, surpassing expectations of 200,000. This marked a significant rebound from October's hurricane and strike-affected addition of 36,000 jobs.

• Unemployment Rate: Increased slightly to 4.2% from 4.1%.

• Wage Growth: Average hourly earnings rose 4% year-over-year to $35.61.

Upcoming Economic Indicators:

1. December 12: Consumer Price Index (CPI) for November – Key inflation data shaping expectations for monetary policy.

2. December 12: Producer Price Index (PPI) for November – Offers insights into wholesale price pressures.

3. December 13: Import Price Index – Gauges inflation in imported goods.

4. December 15: Retail Sales Data for November – Critical for understanding consumer spending trends during the holiday season.

3. Central Bank Policies

Federal Reserve (FOMC):

• Next Meeting: December 17–18, 2024

• Current Outlook:

  • The FOMC has been cautiously cutting rates, with reductions of 0.5% in September and 0.25% in November.

  • A potential additional 0.25% cut may be decided in the December meeting, depending on inflation and employment data trends.

Bank of Japan (BOJ):

• Next Meeting: December 18–19, 2024

• Current Outlook:

  • The BOJ is considering policy adjustments, including a potential rate hike, amid rising inflation (above 2%) and strong wage growth.

  • Weak consumption data poses a counterargument, leaving market participants divided on the timing of further policy normalization.

  •  Meeting on December 18-19.

4. Corporate Earnings

Key Earnings from Last Week:

• Salesforce (December 3): Reported $9.44 billion in Q3 revenue (+8% YoY) and raised its full-year guidance. Shares climbed by 8.6%.

• Hewlett Packard Enterprise (December 5): Q4 revenue surged 15%, with a 32% increase in AI-optimized server sales. Shares rose 11%.

Earnings for the Coming Week:

• December 9: Oracle Corporation

• December 10: AutoZone, Inc.

• December 11: Nordson Corporation

• December 12: Broadcom Inc.

• December 13: Adobe Inc., Costco Wholesale, Darden Restaurants, Lennar Corporation

5. Seasonality

1. Thanksgiving Rally: Seasonal optimism continues to support markets as retail investors and funds position for year-end gains.

2. Year-End Momentum: Increased buying by institutional investors typically bolsters market stability during December. However, economic reports and earnings may temporarily disrupt this trend.

6. Volatility

Current State: The VIX at 12.77 remains below historical averages, reflecting a calm market environment.

Outlook: Our Vixionary, Quantile VIX Predictor and VOLQAL models suggest a range between 12.5 to 16 with no indication of a major binary event.

Disclaimer

This report is provided for informational purposes only and does not constitute financial, investment, or trading advice. While every effort has been made to ensure the accuracy of the information, market conditions can change rapidly. This report reflects publicly available data as of December 6, 2024, and should not be relied upon for decision-making.

You should consult a licensed financial advisor or professional for personalized advice tailored to your circumstances. Neither the authors nor the distributors of this report accept liability for any losses incurred directly or indirectly as a result of reliance on this information.