Weekly Recap: Tariffs, NVIDIA, and a Market Going Nowhere

Market Recap & Outlook – Weekly Analysis

Key Concepts:

• FOMC: Federal Open Market Committee – the monetary policymaking body of the Federal Reserve System.
• Transitory (Inflation): The idea that inflationary pressures would be temporary and self-correcting.
• Hawkish (Tape/Take): Suggesting a bias towards raising interest rates to control inflation.
• IV (Implied Volatility): A measure of the market's expectation of future price fluctuations.
• VIX: CBOE Volatility Index – a real-time market index representing the market's expectation of 30-day volatility.
• OVX: CBOE Crude Oil Volatility Index – measures the implied volatility of crude oil prices.
• IV Rank: A percentile ranking of current implied volatility compared to its historical range.
• Pain Trade: A market scenario that would cause the most losses for the majority of market participants.
• RSP: Invesco S&P 500 Equal Weight ETF – an exchange-traded fund that provides equal weight to each stock in the S&P 500.

I. Recent Market Headlines & Economic Data

The past week was marked by several significant events impacting market sentiment. The Supreme Court ruling on tariffs initially led to a market rally, but this was quickly countered by former President Trump’s announcement of a potential 10% tariff on all goods. This created ongoing uncertainty regarding trade policy. The FOMC meeting signaled a continued focus on achieving “more disinflation,” suggesting a potentially hawkish stance. Geopolitical tensions, including escalation in Iran and events in Mexico, added to the overall risk environment. The discussion explicitly dismissed the idea that previous inflation was “transitory,” stating it was “here to stay.”

II. Upcoming Economic Events & Earnings

The primary focus for the coming week is Nvidia’s earnings report on Wednesday, considered the “last big name stock” of the first quarter earnings season. Additionally, PC inflation data will be released on Friday. Ongoing concerns surrounding tariffs, Iran, and Mexico will continue to influence market dynamics.

III. Weekly Market Performance & Volatility

Over the past two weeks, the market has exhibited a remarkably tight trading range. The S&P 500 experienced approximately a 1% move both up and down, resulting in a net decline of 0.2% over the period. Despite significant day-to-day volatility and elevated VIX levels, the overall market movement has been minimal. The expected weekly move was around 1.27 points last week, with a current expectation of 1.7% for the upcoming week, with the VIX at 19 (relatively high). A VIX of 16 correlates to an expected daily move of approximately 1%.

IV. Range-Bound Market & Potential Breakout

The market is currently confined within a defined range, with potential support around 6700 and resistance around 7680. The prevailing sentiment is that a breakout is possible this week, given the confluence of events like Nvidia earnings and geopolitical factors. However, a contrarian view suggests the market will remain within the range, potentially testing the lower end around 6700. The discussion highlighted the unusual situation of markets near all-time highs alongside relatively high volatility, questioning its sustainability.

V. Sector & Stock Specific Movements

Analysis of individual stock performance revealed a mixed bag. John Deere experienced a substantial rally following its earnings report, while Caterpillar (CAT) has shown parabolic growth. SanDisk has seen news-driven volatility. Conversely, stocks associated with the AI “takeover” – CrowdStrike, PandW, and DataDog – have faced downward pressure. Boeing’s performance is linked to ongoing geopolitical events. Notable individual stock movements included Apple (up 11%) and John Deere (briefly up significantly on call options).

VI. Volatility Analysis (IVR & VIX)

Implied volatility (IV) has generally contracted across the board, except for metals (gold and silver) and crude oil, where volatility is increasing. Equity and Bitcoin volatility have decreased. This divergence suggests a “fear move” in commodities while the broader market remains relatively calm. The OVX (CBOE Crude Oil Volatility Index) and option chains are recommended tools for monitoring oil volatility.

VII. Earnings Season Review & Nvidia Focus

The current earnings season has been characterized by a 50/50 split between positive and negative results, with an average return of 0%. This underscores the importance of directional trading strategies during earnings season. Nvidia’s earnings are particularly crucial, with the stock trading in a tight range (around $190) and an IV Rank of 30. The discussion emphasized that earnings guidance and AI-related headlines are key drivers of Nvidia’s price action.

VIII. Market Sentiment & Potential Scenarios

There is a prevailing sense of pessimism in the market, described as a “doomsday” feeling. Despite this, the market remains near all-time highs. The “pain trade” is identified as a slow grind downwards with low volume and low volatility, resulting in incremental losses. A preferred scenario involves a test of the downside followed by a breakout to the upside next week. The equal-weighted S&P 500 (RSP) is seen as reflecting the performance of stocks that haven’t yet participated in the market rally, particularly those associated with AI.

Notable Quotes:

• “I don't think 20 [VIX] is the new 18… I think volatility will have to go down.”
• “The pain trade is at all-time highs the downside low volume a low volatility chop to the downside where you go you know you get like 10 down 10 down 10 down 20 up and then you get like you know 310 death by a thousand cuts.”
• “If you did them all [earnings trades], it's a wash.”

Conclusion:

The market is currently in a state of uncertainty, balancing near all-time highs with elevated volatility and a range of geopolitical and economic concerns. Nvidia’s earnings report will be a critical catalyst this week, potentially triggering a breakout from the current range. A cautious approach, acknowledging the potential for both upside and downside risks, is warranted. The analysis highlights the importance of monitoring volatility, sector-specific movements, and individual stock performance to navigate the current market environment effectively.