Volatility outlook for the week of February 17, 2025

1. Weekly closing data of major indices

Compared to February 7, 2025, the major indices showed mixed performance with modest volatility adjustments:

• Dow Jones Industrial Average (DOW): 44,303.4 → 44,546.1 (+0.55%)

• NASDAQ 100 (NDX): 21,491.31 → 22,114.69 (+2.90%)

• Russell 2000 Index: 2,279.71 → 2,279.98 (+0.01%)

• Philadelphia Semiconductor Index (SOX): 5,009.34 → 5,160.94 (+3.03%)

• S&P 500 Index (SPX): 6,025.99 → 6,114.63 (+1.47%)

• CBOE Volatility Index (VIX): 16.54 → 14.77 (-10.71%)

• VXX (Short-Term Futures ETN): 43.96 → 42.00 (-4.46%)

• VXZ (Mid-Term Futures ETN): 51.04 → 50.85 (-0.37%)

The decline in VIX suggests easing market uncertainty, while index gains indicate sector-specific strength rather than broad market rallies.

2. Key developments of the week

Earnings reports delivered mixed signals, influencing market sentiment throughout the week. Some companies exceeded expectations, leading to stock price gains, while others faced investor concerns due to forward guidance or sector-specific challenges.

• McDonald's Corporation (MCD) reported strong earnings but cited domestic sales challenges due to higher prices. Despite this, shares rose 4.8% as overall revenue exceeded expectations.

• Rockwell Automation, Inc. (ROK) posted adjusted EPS of $1.83, surpassing estimates of $1.58. Despite a slight decline in sales, a 10% increase in new orders led to a 12.7% jump in stock price.

• ON Semiconductor Corporation (ON) met revenue expectations, but weaker forward guidance raised concerns about the semiconductor sector. Shares fell 8.2% post-earnings.

• Shopify Inc. (SHOP) delivered 31% year-over-year revenue growth to $2.81 billion, with adjusted EPS of $0.44. However, muted forward guidance led to a 1.5% decline in the stock.

• Coca-Cola Company (KO) aligned with revenue growth expectations, driven by strong pricing power, but weaker volume growth caused the stock to remain flat.

• Reddit reported lower-than-expected user growth, triggering a 5.3% stock decline, as investor sentiment weakened over advertising revenue potential.

• Cisco Systems (CSCO) exceeded earnings expectations, reporting 5% revenue growth year-over-year. AI-driven networking demand contributed to a 2.1% increase in share price.

• Palo Alto Networks (PANW) saw cybersecurity demand remain strong, with revenue up 14% YoY to $2.3 billion. The stock saw a modest post-earnings gain.

• Applied Materials (AMAT) reported $7.17 billion in revenue (+7% YoY) with adjusted EPS of $2.38. However, concerns over U.S. export restrictions on China led to a 4.8% stock price drop.

3. Economic indicators released last week (Feb 10–14, 2025)

Inflation

The Consumer Price Index (CPI) for January 2025 indicated a 0.5% month-over-month increase, surpassing the anticipated 0.3% rise. This uptick elevated the annual inflation rate to 3%, up from 2.9% in December. Core inflation, excluding food and energy, also climbed to 3.3%, reflecting persistent price pressures.

Producer prices

The Producer Price Index (PPI) rose by 0.4% month-over-month in January, exceeding expectations of a 0.3% increase. On an annual basis, the PPI advanced to 3.4%, indicating that wholesale price pressures remain elevated.

Labor market

Initial jobless claims for the week ending February 8 decreased to 213,000, slightly below forecasts, suggesting continued strength in the labor market.

Consumer sentiment

The University of Michigan's Consumer Sentiment Index for February 2025 declined to 67.8 from 71.1 in January, marking the lowest level since July. This drop reflects growing consumer concerns about rising prices and potential impacts on purchasing power.

4. Geopolitical environment

Middle East Developments

The ceasefire between Israel and Hamas remains fragile. On February 15, Hamas released three Israeli hostages: American-Israeli Sagui Dekel-Chen, Alexander Troufanov, and Yair Horn. In exchange, Israel freed hundreds of Palestinian prisoners. Despite these developments, tensions persist, with recent Israeli airstrikes in Gaza and ongoing disputes over aid and negotiations.

Israeli Prime Minister Benjamin Netanyahu has expressed support for a U.S. proposal to transfer Palestinians out of Gaza, a plan facing significant opposition from Arab nations. The situation remains volatile, with both sides accusing each other of ceasefire violations.

Trade Tensions

On February 16, 2025, Asian markets experienced a rebound, driven by a weaker U.S. dollar and renewed investor optimism in Chinese markets. The dollar's decline followed delays in U.S. tariff implementations, easing immediate concerns of escalating trade disputes. However, the broader U.S.-China trade conflict remains unresolved, contributing to ongoing market uncertainty.

President Trump confirmed that the 25% tariffs on imports from Mexico and Canada remain suspended pending further negotiations. Meanwhile, European leaders have expressed growing concerns over potential U.S. trade policies targeting EU exports. The European Commission is exploring retaliatory measures should the U.S. proceed with new tariff actions.

These geopolitical developments contribute to an environment of uncertainty, with potential implications for global markets and volatility in the upcoming weeks.

5. Upcoming economic indicators

• February 19: New residential construction

• February 20: Philadelphia Fed manufacturing survey, weekly initial jobless claims, Federal Reserve meeting minutes

• February 21: Existing home sales, S&P Global manufacturing and services PMI

6. Upcoming corporate earnings

• February 18: Arista Networks (ANET), Devon Energy (DVN), Medtronic (MDT), Occidental Petroleum (OXY)

• February 19: Analog Devices (ADI), Garmin (GRMN)

• February 20: Alibaba Group (BABA), Block, Inc. (SQ), Booking Holdings (BKNG), Newmont Corporation (NEM), Walmart (WMT)

7. Central bank actions

• Federal Reserve: The Federal Reserve is set to release the minutes from its January meeting on February 20, 2025. These minutes will provide insights into the central bank's decision to maintain interest rates and its future policy trajectory.

• European Central Bank (ECB): The ECB's Governing Council has a non-monetary policy meeting scheduled for February 19, 2025. While no immediate policy changes are anticipated, discussions may offer perspectives on the eurozone's economic outlook and potential future actions.

8. Market sentiment & volatility analysis

The past week exhibited a mix of earnings-driven fluctuations, economic data responses, and geopolitical events. While the quantitative model suggests moderately stable volatility, qualitative factors introduce nuanced risks.

Earnings impact: Strong earnings from Cisco Systems (CSCO), Palo Alto Networks (PANW), and Rockwell Automation (ROK) provided a buffer against broader market volatility. However, Applied Materials (AMAT) faced concerns over U.S. export restrictions, and ON Semiconductor (ON) issued weaker forward guidance, highlighting ongoing challenges in the semiconductor sector.

Geopolitical risks: While the U.S. has temporarily suspended tariffs on Mexico and Canada, tensions remain over China-related trade policies and potential EU retaliatory measures. The release of hostages in Gaza has slightly reduced immediate risk, but ongoing Middle East instability and Ukraine tensions contribute to a background level of geopolitical uncertainty.

Economic indicators: The CPI and PPI reports exceeded expectations, signaling persistent inflationary pressures. While jobless claims remain stable, consumer sentiment has weakened, raising concerns about slowing economic growth. The Federal Reserve’s upcoming meeting minutes may provide further clarity on the central bank's policy outlook.

VIX outlook for the week of February 17, 2025

Integrating both qualitative insights and the full ensemble model forecast, the VIX is expected to remain in a stable range, with a high probability of staying below 15 and minimal risk of a major volatility spike.

• Expected VIX Level: 13.27

Scenario analysis:

• (VIX < 15): 100% probability

  
  

  The model suggests that VIX will likely remain below 15, indicating a stable volatility environment.

• (VIX 15-20): 100% probability

  
  

  There is still a high probability of VIX staying within this range based on historical patterns and current market conditions.

• (VIX > 20): 0% probability

  
  

  No significant volatility spike is expected in the coming week under normal market conditions.

These projections indicate a relatively stable volatility outlook, barring unexpected macroeconomic or geopolitical shocks.

Disclaimer

This report is for informational purposes only and does not constitute financial, investment, or trading advice. The forecasts and probability estimates are based on historical data and statistical models, which are subject to change. Market conditions can shift rapidly, and past performance is not indicative of future results. Readers should conduct their own research and consult with a qualified financial professional before making any investment decisions.