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Volatility Outlook - Week of January 27, 2025

Writer's picture: Ken PhilipsKen Philips

 


1. Weekly Closing Data of Major Indices


As of January 24, 2025, the major indices closed as follows, with percentage changes compared to January 17, 2025:

  • VIX (CBOE Volatility Index): 14.85 (-7.01%)

  • S&P 500 Index (SPX): 6,101.24 (+1.74%)

  • Dow Jones Industrial Average (DOW): 44,424.3 (+2.15%)

  • NASDAQ 100 (NDX): 21,774.01 (+1.54%)

  • Russell 2000 Index: 2,307.74 (+1.41%)

  • Philadelphia Semiconductor Index (SOX): 5,341.94 (+0.59%)

The market saw continued gains, with VIX declining by 7.01%, reflecting lower volatility expectations. However, upcoming risks may drive fluctuations.


2. Geopolitical Environment


  • Ukraine Conflict:

    • On January 22, 2025, President Trump urged Russian President Vladimir Putin to end the "ridiculous war" in Ukraine, warning of additional tariffs and sanctions if no resolution is reached.

    • Trump is also pushing for lower oil prices to weaken Russia’s war funds, though OPEC+ dynamics complicate this strategy.

  • Middle East Developments:

    • A ceasefire between Israel and Hamas began on January 19, 2025, facilitated by both the Biden and Trump administrations. The agreement includes prisoner exchanges and aims to stabilize the region.

  • U.S. Politics:

    • President Trump’s first week in office is expected to bring executive orders affecting trade, taxes, and regulations. Market reactions remain cautious.


3. Commodities

  • Oil Prices: Brent crude at $78.88 per barrel, decreasing from the previous week.

  • Gold: Closed at $2,773.57 per ounce, supported by global economic uncertainty.


4. Central Bank Policies


  • European Central Bank (ECB): Policymakers remain divided on rate cuts, awaiting more inflation data.

  • Bank of Japan (BOJ):

    • On January 24, 2025, the BOJ raised its short-term policy interest rate from 0.25% to 0.5%, the highest level since the 2008 financial crisis.

    • BOJ Governor Kazuo Ueda emphasized that monetary policy will be adjusted as needed, based on economic and price developments.

    • Analysts anticipate further rate hikes, potentially every six months, driven by inflation forecasts.

  • Federal Reserve (FOMC) Meeting:

    • The Federal Open Market Committee will meet this week. While rates are expected to remain unchanged, investors will monitor statements for future policy direction.


5. Corporate Earnings

Earnings Reports (January 20-24, 2025)

  • Netflix (NFLX) - January 21: Added 18.91M subscribers, exceeding expectations. Revenue $10.25B, EPS $4.27. Stock surged +9.7%.

  • Johnson & Johnson (JNJ): Sales $22.5B, EPS $2.04, strong 2025 outlook.


Upcoming Earnings (January 27-31, 2025)

  • Tesla (TSLA) - January 29: Expected EPS $0.76, revenue $27.14B. Focus on deliveries, AI developments.

  • Microsoft (MSFT) - January 30: Cloud and AI growth in focus.

  • Meta (META) - January 30: AI infrastructure spending under scrutiny.

  • Apple (AAPL) - January 31: iPhone sales and China demand in focus.


6. Upcoming Economic Data Releases

  • New Residential Sales (U.S.) - January 27, 2025: Census Bureau report on December 2024 home sales.

  • Durable Goods Orders (U.S.) - January 28, 2025: Advance report on manufacturing shipments, inventories, and orders.

  • Advance Economic Indicators Report (U.S.) - January 29, 2025: Data on international trade, retail, and wholesale inventories.

  • European Central Bank (ECB) Meeting: Expected policy decision impacting rate expectations.


7. Seasonality Trends

  • January effect remains weak in small-caps, with Russell 2000 up only 1.41%.

  • Tech sector still driving gains, but SOX slowing down at +0.59%.


8. Volatility Outlook

  • VIX declined to 14.85 (-7.01%), reflecting strong risk appetite.

  • Possible catalysts for increased volatility:

    • Trump’s first major policy moves.

    • Earnings season surprises (Tesla, Microsoft, Apple).

    • Central bank statements from BOJ, ECB, and the Federal Reserve.

    • Upcoming economic reports impacting investor sentiment.


·       Baseline scenario: VIX remains stable (~15), with a 72% probability of staying below 16.

·       Moderate risk (~23%) of an uptick towards 16-20, likely triggered by external events.

·       Very low probability (~5%) of a major volatility surge above 20.


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 24, 2025.

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