Market Resilience


Key Takeaways

  • Markets Reversed Losses Wednesday
  • Interest Rates Coming Down
  • Volatility Remains High Still

Wednesday morning was looking a bit gloomy as markets were down across the board. By the time we closed; however, markets were largely flat for the day. While a gain of nothing might not sound particularly exciting, that markets were able to erase early losses was encouraging. In the overnight session, we saw similar action. S&P 500 futures, which had been down as low as 3735, turned around when foreign markets opened and are up in early trading.

In what has been a trying market of late, these types of reversals offer a bit of optimism. It’s also worth noting volatility, which was recently as high as 35 on an intraday basis, is now down below 30. That’s not to say markets are signaling an all clear, but it’s worth noting when sellers run out of steam and volatility contracts.

In the treasury market, bonds are staging a nice rally. Rates on 30 year bonds are currently 3.22% after reaching a high of 3.46%, while the 10 year note is now trading at 3.13%. Last week, the Fed announced a 75 basis point increase in interest rates and has been signaling a willingness to do whatever is necessary to rein in inflation. That we’re actually seeing rates coming down may signal the market is less concerned about just how aggressive those future hikes might be. Today is also the conclusion of Fed Chairman Powell’s two days of testimony in front of Congress and markets will likely parse his testimony for any hints of future fed plans.

While these are all encouraging signs, we have to remember the VIX is still elevated relative to its historical mean. Therefore, the potential for continued choppy trading still exists. It’s always important to stick with your gameplan and remain mechanical with trading decisions. When emotions begin dominating decisions, that’s when risk increases.

tastytrade, Inc. commentary for educational purposes only.

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