Macro Theme:

 

 

Founder’s Note:

Futures are 50bps lower, with higher yields being cited as the culprit (US10Y +4.2%).

Overall gamma remains mildly positive, suggesting the S&P remains supported by dealer hedging flows. 5,820 (SPY 580) & 5,800 are large support strikes, with our stance flipping to risk off <5,800.

Resistance shows at 5,850.

We’ve been vocal about an equity pullback post-OPEX, and that appeared to be underway yesterday AM.

The AM pullback left us feeling good about the prospects for a post-OPEX equity correction – until we looked at NVDA.

NVDA was +3% in the AM, challenging intraday all-time-highs while the S&P was sliding ~50bps lower. If NVDA is going materially higher its a real challenge for equity indexes to drop, as NVDA & linked semi-stocks are +20% of SPX/QQQ market caps (see here). Therefore this morning, while we see ES futures -50bps, NVDA is +25bps, inferring equities are not quite ready to give up gains. Should NVDA “go red”, we’d be much more open to the idea of lower S&P prices.

Back to rates, while we don’t offer any forward FOMC views, the market is heavily pricing a 25bps cut at the upcoming meeting on Nov 7 – one day after the election. 10 yr yields are now 50bps higher that they were at the Sep FOMC…there is clearly some tension between short & long term yield expectations.

While the macro pundits sort through rate dynamics, in the options space we know that uncertainty drives implied volatility. Given that equities are just off of all-time-highs, rates don’t seem to (yet) matter, particularly for 0DTE traders.

We can’t help but wonder if the market is more worried about Powell’s forward guidance on 11/7 vs election results…Its likely a hawkish Powell would drip up end-of-year bullish plays even if we know the future President on 11/7.

Its food for thought.