The Waiting

(Obvious theme music for today: Tom Petty and the Heartbreakers)

Today is a “watch and wait” day for markets.  I don’t know of a widely accepted technical term or market adage to describe when there are few immediate catalysts on a given day, but several highly meaningful, potentially market-moving ones are scheduled for the rest of the week.  Over the following four days we expect to receive earnings reports from five of the remaining Magnificent Seven stocks, get a monthly Employment report, learn the Treasury’s refunding plans for the coming quarter, and of course, hear from the FOMC and Chair Powell. 

Beginning with mega-cap tech earnings, the parade starts in earnest tomorrow.  We expect to hear from Mag 7 stalwarts Microsoft (MSFT) and Alphabet (GOOG, GOOGL), along with the “Mag 7 Adjacent” Advanced Micro Devices (AMD) after the close tomorrow (Tuesday), while Thursday afternoon brings us Apple (AAPL), Amazon (AMZN) and Meta (Meta).  Any or all of these can be market-moving, but we do have the possibility that different behemoths can move in opposite directions after earnings, dampening the broad market outcomes.

While much of the focus will understandably rest upon these large tech companies – the Tuesday threesome mentioned above represents about 12% of the S&P 500 (SPX) and a bit over 16% of the NASDAQ 100 (NDX), while the Thursday triad comprises about 12.5% of SPX and 18% of NDX – there is no shortage of other key companies offering results – and hopefully guidance – this week.  Corning (GLW), MasterCard (MA), Qualcomm (QCOM), Clorox (CLX), and Honeywell (HON), among many others, will offer important clues about the health of the consumer and industrial sectors, while the two largest energy stocks – Exxon Mobil (XOM) and Chevron (CHV) report on Friday morning. 

If earnings season was a movie, this week would be the climax.

While we have the usual array of economic events, the biggest by far will be Wednesday’s FOMC meeting results and subsequent press conference, followed by the monthly Employment report on Friday.  Expectations are for no rate moves at this meeting, but investors will be eagerly awaiting clues that will swing the current 50-50 likelihood for a 25-basis point cut in March and expectations for another five cuts in the coming year.  Few people expect fireworks from Wednesday’s events, which of course makes me more suspicious that a surprise reaction could occur.

Interestingly, it was this exact setup a year ago that brought so-called zero-dated, or 0DTE, options to the fore.  There was an FOMC meeting on February 1^st, 2023, and the press conference became the catalyst for a rally when traders became enthused by Chair Powell’s repeated use of the word “disinflation.”  The rally continued apace into the next session, powered by then-record options volume.  Yet the difference between that rally and prior Thursday moves was that traders realized en masse that they could buy recently-created Thursday-expiring options that would not leave them exposed to the Friday Payrolls report. 

Although Friday’s jobs numbers will of course be too late to influence the FOMC, numbers that diverge sharply from consensus expectations for a 185,000 increase in Nonfarm Payrolls and a 3.8% Unemployment Rate can certainly move markets nonetheless.  Depending upon the outcome of Wednesday’s FOMC meeting, it’s not unreasonable to see a heavy, ahem, heavier than usual, focus on Thursday-expiring options this week.

Interestingly, volatility is still relatively subdued coming into this week.  The current VIX reading of 13.77 is a bit above recent levels, but hardly reflects significant demand for volatility protection.  One might say, “OK, this could be a busy week, but VIX looks out 30 days,” but the 9-Day VIX (VIX9D) is only at 14.33.  That is the high end of its recent two-month trading range, but still hardly reflective of conditions that indicate much interest in hedges.  Sure, as noted above, it’s quite possible that the various major events this week can offset each other, dampening overall market volatility.  But that seems to be the prevailing mood of the market, instead of considerations that any or all of these events could lead to gyrations in the near term.