Vol compression ✅ What next?
FOMC on Wednesday
Quick summary:
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SPX is down 4% YTD, Nasdaq down 8%, and gold surged to $3,000 per ounce. Heavy deleveraging and volatility made it a tough trading environment, but ORCA stayed positive for the year.
With the FOMC meeting on Wednesday, the focus is on Powell’s comments and the Fed’s dot plot projections. A volatility compression already triggered a relief rally. Will it continue?
Retail sales and housing reports this week will give insight into consumer strength and the real estate market’s struggles as higher rates continue to weigh on the economy.
The competition
This week centers around the Fed meeting, retail sales, and housing data. Let’s use these insights to stay ahead and adjust our approach. Volatility is still in play, but with the right moves, we can navigate what’s next.
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Last week’s performance
Another week of heavy selling. SPX is down 4% YTD, Nasdaq down 8%, and gold hit $3,000 per ounce. The fear was real—major players took big losses, and deleveraging was everywhere. ORCA held up well (still positive for the year), but this market remains jumpy, with options pricing in extreme volatility. That’s not an ideal setup, but we’ve been tracking this move. Two weeks ago, we called for caution, and last week, we said to take some profits but stay prepared—this isn’t over.
The driver? Treasury Secretary Scott Bessent called it a necessary “detox period.” Years of easy money are catching up, and higher rates aren’t going away anytime soon. There’s talk that the Trump administration wants a short-term recession to force rates lower, but so far, it’s not working—SPX is down 10% from its peak, but the 10-year yield rose from 4.1% to 4.3%. Now, it’s all about the Fed. With the FOMC meeting on Wednesday and major March OpEx ahead, the setup leans toward volatility compression—a relief rally before the next move. The VIX went down sharply, from 30 last week, to 20 today. This clearly helped markets bounce into midweek. The real question: will the Fed add fuel to the fire or calm things down?
Beyond the Fed, retail sales data will be watched closely after January’s sharp drop, giving a sense of consumer strength in this uncertain environment. Housing data, including homebuilder confidence and existing home sales, could also shed light on the real estate market’s struggles, as high rates continue to weigh on affordability. With volatility still high, the market’s reaction to the Fed’s outlook will be the key driver this week.
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