Market Optimism: Stocks Approach Year Highs, Volatility Dips and Fed Hike Expectations Diminish

Equities are surging as volatility dips, and the S&P and Nasdaq near year high. Oil and gas prices are plunging, while gold and silver rally. Where next?

• Markets are sending signals that inflation is cooling; divergence between precious metals is surging and there’s bond market movement.
• Equities are surging as volatility dips, and the S&P and Nasdaq near year high. Meanwhile, the Russell 2000 performance is noteworthy.
• Oil and gas prices are plunging, while gold and silver rally. The market expects an end to rate hikes.

Over the past month, economic data indicates a cooling inflation trend without hinting at an impending recession. This morning's housing starts figure, slightly below projections, perpetuates this trend. Yesterday's market performance, however, showed little change. The S&P 500 rose by less than 0.1%, while the Nasdaq Composite registered a marginal increase. This week, the S&P climbed 2%, and the Nasdaq slightly exceeded a 2% uptick.

While stocks remained subdued yesterday, the commodities market experienced heightened activity. Crude oil, which peaked at 95 in August, has taken a nosedive since then, plummeting over 5% on yesterday to nearly $73 per barrel, marking its fourth consecutive week of losses. Similarly, natural gas also dipped, concluding the day at $3.06, down by month-end, nearly 12% from its recent highs, raising concern among oil traders. Meanwhile, gold and silver shone amidst this volatility, with gold surging 1% to close at $1,987.30 an ounce and silver rising over 1.5% to $23.93. In the past month alone, gold prices have climbed by 8%, and silver by an impressive 15%.

All that glitters

The surge in precious metal prices, contrasting with bond market movements, is a significant observation. While the bond market typically displays minimal fluctuations because of its liquidity, the yield on the 10-year note plummeted by 60 basis points in less than a month, a staggering shift. This divergence between bonds rallying, seemingly anticipating a rate cut, and the precious metal rally, suggests otherwise. Nevertheless, the market consensus appears to signal the end of rate hikes. The probability of a rate hike in December, as per the Chicago Mercantile Exchange, is less than 0.5%, a significant drop from the 9% forecast just last week.

Recent equity market surges have been striking, with both the S&P 500 and Nasdaq hovering merely 2% below their year-to-date intraday highs. Market volatility is approaching some of its lowest levels this year, evident in the VIX's premarket dip of 3% to 13.90. Furthermore, the Russell 2000's impressive 10% ascent from its recent year-low at 1639 suggests a broadening participation of stocks in the upward moves, which augurs well for investors, especially considering its underperformance earlier this year.

Lower trading volume

Anticipating lighter volumes today and with Thanksgiving approaching, a continuing trend of diminishing market volumes is expected. However, subdued volumes don't necessarily mean quiet markets, often leading to unexpected market movements. It's crucial to remain aligned with your investment strategy and long-term plans amid these fluctuations.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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