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VIX Outlook - Week of January 20, 2025

Writer's picture: Ken PhilipsKen Philips



 

1. Weekly Closing Data of Major Indices


As of January 17, 2025, the major indices closed as follows, with percentage changes compared to their January 10, 2025, closing values:

  • VIX (CBOE Volatility Index): 15.97 (-18.27%)

  • S&P 500 Index (SPX): 5997.07 (+2.92%)

  • Dow Jones Industrial Average (DOW): 43487.80 (+3.69%)

  • NASDAQ Composite: 21443.90 (+2.87%)

  • Russell 2000 Index: 2275.73 (+3.94%)

  • Philadelphia Semiconductor Index (SOX): 5310.47 (+5.42%)

The week saw broad gains across major equity indices, reflecting strong risk appetite. The sharp -18.27% decline in VIXsuggests investors have absorbed recent volatility shocks, but potential risks remain on the horizon.


2. Geopolitical Environment


U.S. Sanctions on Russian Oil Fleet

On January 10, 2025, the United States announced comprehensive sanctions targeting Russia's oil industry, including approximately 180 vessels, several traders, and major oil companies such as Gazprom Neft and Surgutneftegas. These measures aim to penalize Russia for its ongoing conflict in Ukraine. The sanctions have disrupted Russian oil exports to key buyers like India and China, leading to a significant increase in global oil prices, which rose from approximately $77 per barrel before the sanctions to $81.73 per barrel by January 17, 2025.

Russia-Iran Strategic Partnership

On January 17, 2025, Russian President Vladimir Putin and Iranian President Masoud Pezeshkian signed a 20-year "comprehensive strategic partnership treaty" in Moscow. This agreement aims to strengthen ties amid Western sanctions and encompasses trade, military cooperation, science, education, and culture. The treaty seeks to enhance economic collaboration, including Russian sales of civilian nuclear technology and gas to Iran, and plans for joint military drills. This development reflects a shift in Russia's foreign relations post-Ukraine invasion, with increased focus on the Middle East and confrontation with the West.

Middle East Ceasefire

On January 15, 2025, Israel and Hamas reached a ceasefire agreement to end 15 months of conflict in Gaza. The truce, set to begin on January 19, 2025, includes the release of hostages held by Hamas and Palestinian prisoners detained by Israel. This development is expected to reduce regional tensions and may lead to increased stability in energy markets.

Russia-Ukraine Conflict & NATO Address

On January 13, 2025, NATO Secretary General Mark Rutte addressed the European Parliament’s Committee on Foreign Affairs and Subcommittee on Security and Defence. He provided an overview of NATO priorities, including defense spending, production, and support to Ukraine, and answered questions from Members of the European Parliament.

No major de-escalation occurred, and Ukrainian drone strikes on Russian industrial sites led to renewed concerns over supply chain disruptions. European markets reacted mildly, with energy sector volatility persisting but not escalating.

U.S. Political Landscape

Donald Trump’s presidential inauguration on January 20, 2025, has increased investor uncertainty regarding potential policy changes. Expected executive orders include trade restrictions, tax policies, and energy regulations. Markets are watching for any indications of tariff adjustments and fiscal stimulus measures.


3. Global Economic Environment

Commodities

  • Gold Prices: Closed at $2,702.69 per ounce, with demand supported by market uncertainty.

Global Economic Indicators

  • United States: The January Consumer Price Index (CPI) came in at 3.1% year-over-year, slightly below expectations, helping calm inflation fears.

  • Eurozone: Inflation remains elevated, pushing the ECB to maintain an accommodative stance. Additionally, the European Union announced it will let its gas price cap expire at the end of January 2025, citing a recovery from the 2022 energy crisis. This decision reflects stabilizing gas markets, with prices currently around 49 euros per megawatt-hour, well below the crisis peak of over 300 euros per megawatt-hour in August 2022.

  • China: A third consecutive month of weak exports points to sluggish global demand recovery. Additionally, China's GDP growth for Q4 2024 came in at 5.4% year-over-year, surpassing market expectations and aligning with the government's annual growth target of 5%. This was supported by extensive stimulus measures, including interest rate cuts and increased fiscal spending, though concerns remain about trade tensions with the U.S. and weak domestic demand.


4. Central Bank Policies

European Central Bank (ECB): During the week of January 13, 2025, ECB policymakers expressed differing views on rate cuts. Chief Economist Philip Lane emphasized the need for a cautious approach, noting persistent services inflation and expected wage declines. Robert Holzmann warned against premature rate cuts, citing core inflation still near 3%, while Yannis Stournaras advocated for gradual easing. Joachim Nagel stressed the need for patience, urging a data-driven approach before reducing rates further.

Bank of Japan (BOJ): The BOJ’s upcoming January 23-24 meeting is expected to address rate hikes, given increasing wage growth and inflationary pressures. Markets are closely watching whether the central bank will move away from its long-standing ultra-loose monetary policy.


5. Corporate Earnings

Key Earnings from January 13-17:

  • JPMorgan Chase (JPM): Reported a record $14B quarterly profit, pushing its stock +8.1% on the week.

  • Goldman Sachs (GS): Beat expectations with a +100% surge in profits, leading to an 11.7% stock increase.

  • Nvidia (NVDA): Despite export control concerns, shares rebounded by 3.1% by week’s end.

Upcoming Earnings (January 20-24):

  • Netflix (NFLX): Scheduled to report Q4 2024 earnings on Tuesday, January 21, 2025, after market close.

  • American Express (AXP): Set to release Q4 2024 earnings on Friday, January 24, 2025, at 8:30 a.m. ET.

 

6. Seasonality

  • The failed Santa Claus rally has given way to continued volatility in January.

  • The January effect has not materialized significantly in small-cap stocks, as the Russell 2000 continues to underperform.

 

7. Volatility Outlook

  • The VIX saw a sharp decline of -18.27% over the past week, indicating a significant easing of market volatility expectations.

  • This drop suggests a strong risk appetite in equities, but also raises concerns of potential complacency in the market.

  • Given the upcoming earnings season, potential shifts in Fed policy, and geopolitical risks, a rebound in VIX cannot be ruled out.

  • Revised Expected VIX Range: 15.0 - 18.0, with potential short-term spikes if unexpected market events arise.

  • Key risks for volatility next weeks:

    • Trump’s first policy moves post-inauguration.

    • Earnings season surprises (particularly in tech and financials).

    • Central bank guidance from the BOJ and ECB.

 

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 17, 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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