Stocks Rally as Volatility Eases and Earnings Impress

The S&P 500 and Nasdaq are gaining momentum as Walmart and Cisco Drive Market Optimism

Major indices posted strong gains this week, reversing recent declines.
The VIX fell significantly, indicating reduced market fears and uncertainty.
Strong earnings reports, particularly from Walmart and Cisco, inspired optimism in the markets.

The stock markets had a remarkable turnaround this week, with yesterday marking another day of impressive gains. The S&P 500 climbed 1.6%, while the Nasdaq Composite surged by 2.34%. The Russell 2000 and Dow Jones Industrial Average also saw significant increases, rising by 2.6% and 1.4%, respectively. As a result, the Nasdaq is up 5% for the week, and the S&P has gained 3.5%, pushing it into positive territory for the month.

One of the most striking aspects of this rally is the collapse in volatility. The VIX, which had spiked to 60 during the recent turmoil, closed yesterday below 16, its long-term average. This rapid decline in volatility highlights how quickly market sentiment can shift, though it serves as a reminder of the importance of staying vigilant.

Mixed earnings reports

Earnings reports this week provided a mixed bag of news. Cisco Systems (CSCO), for example, reported over $1 billion in orders tied to Artificial Intelligence (AI), indicating strong demand for AI-related infrastructure. However, Cisco also announced layoffs affecting 7% of its workforce, raising questions about the sustainability of this demand and whether AI may start replacing jobs.

Walmart (WMT) also reported strong earnings, with its stock jumping over 6% yesterday. The company noted robust sales in various product categories, showing no signs of waning consumer demand. This is a positive indicator amids concerns of a potential recession, especially when combined with the latest consumer price index (CPI) and producer price index (PPI) reports, which suggest that inflation is slowing.

The week ahead

Looking ahead, next week will feature earnings reports from major retailers like Lowe's (LOW), Target (TGT) and Macy's (M). These reports will be crucial in assessing whether consumer demand remains strong or if there are signs of a potential economic slowdown.

As always, active investors would do well to adhere to their long-term goals amid volatility in the markets.

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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