Weekly Chart Review

VIX Compression & 2/10 Curve

*** A quick programming note before we get into this week’s newsletter. I will be traveling for the 4th of July holiday so there will not be a newsletter next week. ***

Politics

One of the goals of this newsletter is to be as apolitical as possible. However, there are times when political events happen when it would be borderline irresponsible not to discuss them.

Last week’s Presidential debate, and the aftermath that followed, fall into that category.

I found the following real-time “implied probability of candidate victory” during the debate fascinating.

Even more fascinating were the seemingly unified calls (from Democrats no less) for Biden to remove himself from the Presidential race after the debate.

A quick Google search suggests that there have been only 5 times in US history when an incumbent President did not seek re-election. The most recent of which was Lyndon B. Johnson.

So while this is rare, it is not unprecedented, and it will no doubt have an impact on markets. The extent of the impact is impossible to know at this point but it is worth monitoring closely.

I’m not a betting man, but it would not surprise me if Biden dropped out of the race by the next publication of this newsletter on July 15th.

VIX

For those who follow the CBOE Volatility Index (aka “the VIX”), you’ll notice that the VIX has continued to move lower in recent months.

Here’s a monthly chart of the VIX with an 8-month exponential moving average (blue line) overlaid on the chart. The moving average gives us a better sense of how much the VIX has declined since mid-2022.

While the VIX is not at the lows of 2018 or 2007, it is at some of the lowest levels since just before the pandemic.

What are the implications for markets?