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VIX Outlook - Week of January 13th, 2025

Writer's picture: Ken PhilipsKen Philips



As of January 10, 2025, the major indices closed as follows, with percentage changes compared to their January 3, 2025, closing values:


  • VIX (CBOE Volatility Index): 19.54 (+21.12%)

  • S&P 500 Index (SPX): 5,827.04 (-1.94%)

  • Dow Jones Industrial Average (DOW): 41,938.4 (-1.86%)

  • NASDAQ Composite: 20,846.1 (-2.25%)

  • Russell 2000 Index: 2,189.39 (-3.49%)

  • Philadelphia Semiconductor Index (SOX): 5,037.47 (-2.45%)


The week saw broad declines across equities, with the Russell 2000 Index experiencing the largest drop, reflecting increased risk aversion towards smaller-cap stocks. Meanwhile, the VIX surged by 21.12%, signaling significantly heightened market volatility amid concerns about inflation, interest rates, and geopolitical developments.


1. Geopolitical Environment


Russia-Ukraine Conflict

Escalating tensions in Ukraine continue to weigh on markets. Ukrainian forces targeted industrial areas in Russia, while Russian advances in Donetsk province persist. These developments are exacerbating supply chain risks and driving energy market volatility.


U.S. Political Landscape

The upcoming inauguration of President-elect Donald Trump on January 20, 2025, introduces potential shifts in trade, economic, and foreign policy. Markets are particularly focused on potential tariffs and fiscal policies that could impact growth.


Middle East Tensions

Unrest in Gaza and broader Middle Eastern instability continue to contribute to elevated risks in global energy markets. Brent crude prices rose to $76 per barrel during the week.


2. Global Economic Environment

Commodities

  • Oil Prices: Crude oil closed at $76 per barrel, reflecting geopolitical uncertainties and moderate Chinese demand.

  • Gold: Gold prices rose to $2,689.35 per ounce, driven by heightened safe-haven demand amidst market volatility.


Global Economic Indicators

  • United States: The latest U.S. labor report, released on January 10, 2025, revealed that the economy added 256,000 jobs in December 2024, significantly surpassing the forecast of 160,000 and the revised November figure of 212,000. This robust job growth led to a decrease in the unemployment rate from 4.2% to 4.1%.

  • Eurozone: Inflationary pressures remain elevated, prompting speculation about aggressive ECB monetary policy action.

  • China: Weak export data for the third consecutive month highlights challenges in global demand recovery.

3. Central Bank Policies

Federal Reserve

The Fed maintained a hawkish tone despite December’s rate cut to 4.25%-4.50%. Strong labor market data limits the likelihood of further rate cuts in the near term.

European Central Bank (ECB)

As of January 2025, the European Central Bank (ECB) is adopting a more accommodative monetary policy stance in response to persistent economic challenges within the eurozone.

In December 2024, the ECB lowered its key interest rates by 25 basis points, bringing the deposit facility rate to 3.00%, the main refinancing operations rate to 3.15%, and the marginal lending facility rate to 3.40%. This decision was based on an updated assessment of the inflation outlook, underlying inflation dynamics, and the strength of monetary policy transmission.

Bank of Japan (BOJ)

The BOJ has maintained its benchmark short-term policy rate at 0.25%. However, with a broadening of wage hikes across Japanese firms and persistent structural labor shortages, there is an increased possibility of a near-term interest rate hike. The upcoming policy-setting meeting on January 23-24, 2025, is anticipated to address this potential adjustment.


4. Corporate Earnings

Key earnings reports expected next week include:

  • Wednesday, January 15:

    • JPMorgan Chase & Co. (JPM): Expected to provide insights into the financial sector’s health.

    • Goldman Sachs (GS): Anticipated to reflect trends in investment banking and trading.

  • Thursday, January 16:

    • Taiwan Semiconductor Manufacturing Company (TSMC): Expected to shed light on semiconductor industry conditions.

    • UnitedHealth Group (UNH): Anticipated to reflect the performance of the healthcare sector amidst ongoing policy changes.


5. Seasonality

The “Santa Claus rally” failed to materialize last year, with heightened volatility persisting into January. The upcoming Retail Sales Report (January 16, 2025) will be a key indicator of consumer behavior during the holiday season.


6. Volatility Outlook

The VIX surged by 21.12% to 19.54, reflecting significantly heightened market anxiety. Based on current trends, the VIX is projected to remain in the range of 19.0-21.0 over the coming week, barring any major surprises or shocks.


Disclaimer

This report is for informational purposes only and does not constitute financial, investment, or trading advice. Market conditions can change rapidly, and this report reflects data available as of January 10, 2025. For personalized advice, consult a licensed financial advisor. Neither the authors nor distributors accept liability for any losses incurred from reliance on this information.

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