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Market Update

Volatility, Bond Yields Pack Trading Cues

January 5, 2015

There’s no limping into January for a Wall Street that closed the books on a powerful advance in 2014. Now the focus turns quickly to jobs data, as the often-market-moving monthly payrolls report hits on Friday. Interest rates, Federal Reserve chatter, and big moves in energy prices (crude prices were essentially cut in half in 2014) remain potential drivers. Plus, don’t look now, but another earnings reporting season sits just around the corner.

These looming events could explain the choppiness that took over stock and volatility market trading in recent sessions (well, that and a few New Year’s Eve hangovers). The CBOE Volatility Index (VIX) touched 20 last Wednesday and again on Friday as the S&P 500 (SPX) saw relatively wide daily swings and players began to position portfolios for 2015. For the week, VIX rose to 17.79 from 14.5, up 22.7% in just four trading days (figure 1).  VIX hadn’t logged such a dramatic move since tumbling oil prices gripped the stock market in mid-December.

Except this time, events played out differently. VIX’s move wasn’t following the broader market; in fact, VIX may have been leading the charge. It will be important to monitor VIX and its potential decoupling from the SPX in coming sessions. In the same vein, bonds remained underpinned by “safe-haven” demand. The yield on the benchmark 10-year Treasury eased to 2.12% on the first trading day of 2015 as investors flocked to U.S. bonds over global alternatives; this benchmark yield is a far cry from its 3% of a year ago.


The CBOE Volatility Index (VIX) tracks the implied volatility priced into S&P 500 options. Last week’s advance suggests collective risk perceptions are moving higher. Chart source: TD Ameritrade’s thinkorswim® platform. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.

Payrolls Must Deliver

That looming jobs report might be one reason for the increased angst. ADP, a payroll services firm, offers a peek at private-sector employment for December with its Wednesday morning release. The Labor Department releases weekly jobless claims Thursday. Both are a table-setter for Friday’s big-daddy report: monthly payrolls. As in past releases, we’re not only looking for number of jobs created but the quality of jobs.  In other words, we need this to be a “career” report and not just a “jobs” report.

The Fed will share the marquee. The release of minutes from its December Federal Open Market Committee meeting, due out Wednesday, might add clarity on the rate front. By most accounts, rate expectations remain “well anchored” on the view Fed officials will be slow to change policy in the face of lackluster global economic growth.

The Fed minutes might help determine whether these low-rate expectations are justified. Will the jobs data follow this script: improving, but not to a degree that might invite wage inflation?

Solid Earnings Baked In?

Once past this flurry of economic data, earnings reports pick up after a two-week lull. Monsanto (MON) is on tap Wednesday. A number of retailers, including Family Dollar (FDO) and Bed Bath & Beyond (BBBY), release results Thursday.

Alcoa (AA) unofficially kicks off the Q4 earnings reporting period next Tuesday, and JPMorgan Chase (JPM) and Wells Fargo (WFC) will be the first big financials to report results a week from Wednesday.

Judging by the performance of various sectors during Q4, investors seem to be anticipating relatively robust profit numbers.


Excluding energy, eight sectors of the S&P 500 moved higher for 2014. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Six of nine S&P 500 sectors scored Q4 gains, led by the industrials, consumer staples, and consumer goods (figure 2). Outside of energy, all sectors logged annual gains, although basic materials and utilities started to flag beginning in September. The exception is the energy sector, of course, which dropped 12.6% in the quarter and 10.5% in 2014, dogged by falling crude prices amid a supply glut.

So, if the bar is already set too high, some companies might start scaling back earnings expectations with guidance and warnings. Remember: we’re already teetering at record stock highs. It may become increasingly difficult for stocks to deliver again. And again.

We’ll get a sense of the mindset of select retail investors with the latest TD Ameritrade Investor Movement Index® (IMX), out Monday. Refresher: IMX tracks holdings/positions, trading activity, and other data from a sample of our 6 million funded client accounts. Net buyers? Net sellers? Let’s see if some investor fatigue settled in during December.

Good trading,


Weekly U.S. economic report calendar. Source:

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