A Lesson In Volatility

Key Takeaways

• Volatility Continues to Roil Markets
• Earnings Season Has Begun
• More Layoffs Announced

I’ve written multiple times that when market volatility as measured by VIX gets to these levels, markets can move around a lot. If you didn’t believe it before this week, you probably do now. VIX has been forecasting daily expected moves of 2% and Thursday was a textbook case. After the S&P 500 fell as low as 3491 on the back of a stronger than expected CPI number, the index then turned and traded as high as 3685, before closing just below 3670. And that, my friends, is volatility at its finest.

Yesterday’s initial selloff came following the release of the CPI which was slightly stronger than expected. That news came just a day after a slightly weaker than expected PPI. This morning, we will get an update on Retail Sales for September, along with the Michigan Consumer Sentiment report. In the interim, we’re also getting a look at 3Q earnings from the banking sector.

JPMorgan beat their earnings estimate on gains from interest income. That news has the stock trading 2% higher in premarket activity However, in making comments after releasing earnings, Jamie Dimon again warned the U.S. could slip into recession sometime in the next six to nine months. Meantime, Wells Fargo
WFC
reported a loss; however, the loss was not as bad as feared. In premarket trading, Wells is trading up slightly. Finally, Morgan Stanley
MS
also reported this morning, missing analyst expectations. The stock is down about 1% in the premarket.

Elsewhere, in what is sadly becoming more and more common, another wave of layoffs was announced. This time, it was both Intel
INTC
and Beyond Meat. The chip manufacturer has really struggled of late and demand for computers has been waning. While Intel didn’t offer details, the news continues the trend we’ve been seeing of layoffs in the tech sector. In premarket, Intel’s stock is unchanged. Beyond Meat also said they would be cutting their workforce. The alternative meat maker said the layoffs would account for 20% of its workforce.

There was also news this morning of a merger. Grocers Kroger
KR
and Albertson’s announced a merger valued at $24.6 billion. Albertson’s shareholders will receive $34.10 per share in the deal.

Overseas, turmoil continues to grip the U.K. Prime Minister Truss will hold a press conference this morning where she is expected to reverse recent budget moves after firing her finance minister. While this story is by and large confined to the U.K. at this point, it’s worth watching as financial upheaval like this has a way of potentially spreading worldwide, a lesson we learned in the 2008 housing crisis.

Lastly, I want to return to volatility. Despite yesterday’s encouraging rally, VIX is still trading just under 32, again 32 is an implied move of 2% daily in the SPX. The swings we saw Thursday are what you can get when VIX is this high. Therefore, like I have been saying, it’s extremely important to stick with your trading plan and timeframe. Markets like this will rattle even the most experienced investors but if you remain mechanical, there are opportunities for both shorter term option traders as well as long term investors.

tastytrade, Inc. commentary for educational purposes only.