Last week (August 2 – August 6), the S&P 500 Index and the Nasdaq 100 Index each reached yet another new all-time high. The Russell 2000 Index remains 5% below its best levels. The fundamental backdrop is improving, based on the 0.5% decline in the U.S. unemployment rate and two straight months with 900,000+ job openings across the country. Earnings growth has also been robust, with 80% of the S&P 500 Index constituents already reporting their second quarter financial results. The U.S. 30-year Treasury Yield increased 10 basis points on the week, mostly following the monthly jobs data release on Friday. However, inflationary pressures and the fourth wave of COVID-19 surges are ongoing concerns. “Reopening” stocks lagged last week, with airlines and retailers showing sensitivity to recent COVID-19 infection numbers.
- U.S. Equity Indices continued their slow ascent.
- S&P 500 Index (SPX®): Increased 1% week-over-week.
- Nasdaq 100 Index (NDX): Increased 1% week-over-week.
- Russell 2000 Index (RUT℠): Increased 0.95% last week.
- Cboe Volatility Index™ (VIX™ Index): Moved between 20.44 and 16.14 last week and closed at lows.
- SPX options average daily volume (ADV) was about 1.12 million contracts, which is slightly higher than the previous week’s ADV of approximately 1.08 million. The one-week at-the-money (ATM) SPX options straddle (4435 strike with an 8/13 expiration) settled at around 40.3, which implies a +/- range of about 0.9%. The weekly ATM straddle settled on a 9.5% implied volatility.
- VIX options ADV was about 320,000 contracts last week, which was higher than the previous week’s ADV of 260,000 contracts. VIX options call volume was in line with put volumes.
- RUT options ADV was 45,600 contracts, compared to an ADV of 45,100 contracts the previous week. The 1-week ATM straddle implies a range of 2.1% ahead of the 8/13 weekly expiry.
Across the Pond
- The Euro STOXX 50 Index gained 1.2% on the week, marking three straight weekly advances for the STOXX Index.
- The MSCI EAFE Index (MXEA℠) increased 1% week-over-week and the MSCI Emerging Markets Index (MXEF℠) increased 1.2% week-over-week.
Charting It Out
Observations on VIX futures term structure
- The VIX futures curve shifted slightly lower and steeper last week.
- The August VIX futures contract fell by 1.30, while the September VIX futures contract declined 1.10 week-over-week.
- The Month-1/Month-2 spread settled at 2.00 wide. For comparison, the spread settled at 1.80 the week prior.
VIX Futures Term Structure
Source: LiveVol Pro
- The U.S. 10-Year Treasury Yield traded in a wide range last week, measuring between 1.13% on Wednesday and 1.3% on Friday, following the release of Nonfarm Payroll data. The yield closed the week at 1.29%, higher by five basis points.
- The S&P GSCI lost 3.5% last week as natural gas prices continued to climb. Crude Oil (September) fell from $74 to $68 on the week. Copper prices, which moved above $4.60 per pound in late July, have since declined to $4.35 per pound.
- Gold and Silver sold off considerably after the employment data release on Friday. Lumber futures have been falling and are retesting 2021 lows.
- The U.S. Dollar Index gained 0.70%, bolstered by the relatively strong Monthly Jobs Report.
- All of the Big Tech leaders in the S&P 500 Index were higher on the week.
- Facebook was the leader, gaining just over 2%, as Apple lagged, adding 0.20%. Tesla closed just shy of the $700 mark.
- Bitcoin (BTC) prices moved higher again last week. On a week-over-week basis the largest cryptocurrency jumped 9%.
- As of Saturday, August 7, Bitcoin was trading around $43,900 compared to $40,200 the week prior.
- Ethereum (ETH) made another significant jump, gaining approximately 29%. ETH was trading around $3,100 on August 7, compared to approximately $2,400 the week prior.
- ETH has added about 75% in the past two weeks. The bull run was catalyzed in part by the “London Hard Fork,” which would entail changes to the fee structure on the ETH blockchain.
- These changes may help pave the way for ETH 2.0, which would embed a Proof-of-Work (POW) mining system.
- A POW structure would likely make ETH mining a thing of the past.
- The 7-day average COVID-19 infection rate rose from 71,000 at the end of July to approximately 105,000 on August 6.
- COVID-19 vaccination rates have increased over the past few weeks. On average, about 675,000 shots are given per day now, compared to about 500,000 a month ago.
- 50% of the U.S. population is fully vaccinated against COVID-19 and 59% have received at least one dose of a COVID-19 vaccine. For those 18 years and older, the numbers are 61% and 71% respectively.
- Globally, the 7-day averages moved from approximately 570,000 to approximately 605,000.
COVID-19 in the U.S.
Source: The New York Times
Tidbits from the News
- Delta is the Greek measure that illustrates the change in the price of an option’s theoretical value for every $1.00 (unit) change in the underlying market. It’s also useful as the probability of a given option expiring in-the-money. Below is a visual breakdown to illustrate “What is the probability/number you would assign to the phrase ___________”. It was inspired by a Sherman Kent CIA Intelligence Analysis study.
Perceptions of Probability
- The S&P 500 Index is higher by 18.1% in 2021. The table below shows the frequency with which the S&P 500 Index’s returns fall within a given decile. Since 2008, there’s only been one down year for the S&P Total Return Index (SPTR). In 2018, the SPTR was lower by 4.38%. The average annual return (1928 -2020) is 12.2%. At this point, 2021 would be better than “average” and fall into the most frequent bucket of returns (10% – 20%).
U.S. Stock Market Annual Returns Over Time (1928 – 2020)
- Total U.S. stock market capitalization hit a new all-time high of more than $50 trillion. U.S. value relative to the rest of the world has moved from 30% in 2011 to 43% in 2021.
U.S. Total Stock Market Capitalization as a Percentage of World Market Capitalization
The Week Ahead
- Data to be released this week: Job openings on Monday; National Federation of Independent Businesses (NFIB) Small Business Index and Labor Productivity and Costs on Tuesday; Consumer Price Index (CPI), Core CPI and Federal Budget on Wednesday; Weekly Jobless Claims and Producer Price Index (PPI) on Thursday; Import Price Index and University of Michigan Consumer Sentiment Index on Friday.
Originally Posted on August 9, 2021 – The Week that Was: August 2 to August 6
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