Yesterday’s market was a bit volatile, though not surprising. We mainly saw sideways trading for most of the day until about 2 PM, when we experienced a significant downdraft.
However, that was reversed into the close with a reasonably sizable buy imbalance. According to Financial Juice, the S&P 500 had a $2.3 billion buy imbalance going into the final minutes, helping lift stocks at the close.
The bigger story yesterday, though, is the VIX 1-day index. We discussed it yesterday when it was at a low of just 11. yesterday, it closed at 15.70—a 42% increase—implying that today, we’ll likely see about a 1% move in the S&P 500. Typically, when the jobs report comes out, volatility on the VIX gets crushed and the S&P 500 moves lower.
After that volatility reset, regular trading should resume. The VIX 1-day index will likely open sharply lower today. So, we could be in a scenario where we see an initial knee-jerk reaction higher regardless of the job report outcome.
FX Market's Reaction Remains Key
I think the FX and rates markets will probably offer the best overall view of how the market responds—not necessarily the equity market. We’ve seen some flattening at the 30-year minus 3-year yield spread. It had been around 60-65 basis points, but now it’s back down to about 30 basis points. That will be something to watch today to see if the steepening continues after the report.
As for the 10-2 spread, we’ve discussed how it looks like it’s in a bull flag pattern in the short term since mid-December. Right now, it’s at the lower end of the range. If the bull flag is going to hold, we need a hot jobs report today. Otherwise, we could see the 10-year yield break below 4.40% and possibly head toward 4.15%.
That’s not what I’ve been expecting, but it’s possible. We’ll have to see how the numbers come in. It’s also unclear how the benchmark revisions will weigh into the data.
The estimates suggest 170,000 new jobs, compared to 256,000 last month. The unemployment rate is expected to remain unchanged, while average hourly earnings are forecasted to stay at 0.3% month over month and fall to 3.8% year over year from 3.9%.
The NFIB released its jobs report yesterday, showing that actual compensation changes rose four points to 33%. While this isn’t a one-to-one indicator with wages in the BLS report, it’s interesting. Additionally, S&P Global’s PMI report previously noted compensation pressures. Also, the same report, which came out on February 5th, in the first line of the report states:
“Stronger job creation despite slowdown in output growth at start of 2025” and “Job creation hits 31-month high“.
So, anecdotal evidence suggests that today’s number could be substantial. We’ll have to see how it plays out. Before wrapping up, I wanted to highlight that TradingView now includes BTIC S&P 500 Total Return Index futures.
Anyone can now access this data using the symbol AST1, which provides the generic contract for the current month. You can find other months through the dropdown. yesterday, equity financing costs for the current contract finished around 54, and they haven’t recovered from the significant decline following the December Fed meeting at the start of the year. Interestingly, we’re at the low end of the range since mid-September.
We also received the New York Fed Primary Dealer Report, which showed that overnight, repo activity for equities dropped from $142.8 billion to $132.3 billion. This aligns with the broader theme we’ve discussed: Demand for leverage hasn’t reemerged, which likely explains why the equity market has been trading sideways for the past few weeks.
