The Market Brief
U.S. stock index futures edged higher on Monday, with tech leading a modest relief bounce, as the US and Iran agreed to halt strikes and resume talks.
Macro Viewpoint
Explosive trading volumes closed out last week driven by Russell rebalance flows, with the S&P 500 ending the week down over two percent as megacap tech significantly underperformed and volatility picked up across the semiconductor complex globally.
On the macro side, diplomatic efforts have provided some relief from the Middle East conflict, though rhetoric from the region remains heated and periodic flare-ups continue to keep the risk of broader escalation, and higher oil prices, firmly on the table.
The Fed remains the other overhang. Markets are pricing in at least one rate hike before year end, and that view gets tested later this week when June jobs data drops on Thursday. Strong numbers would reinforce the case for tightening. Weak ones complicate an already difficult setup.
Prime Intelligence
For weeks we have been flagging the growing spread between Nasdaq and S&P 500 implied volatility.
The options market was signaling that Nasdaq was pricing in far more risk than the broader market, and that gap had stretched to levels not seen in years.
Last week that call played out. Hedge funds sold US equities for the second straight week at the fastest pace since Liberation Day, with Information Technology taking the brunt of it. In both dollar and percentage terms, the net selling in tech was the largest in over a decade.
Key Takeaway: The Nasdaq-SPX implied vol spread had been stretched to multi-year extremes, signaling the market was pricing significant stress into tech. That stress showed up in the prime book last week, with hedge funds dumping Info Tech at a pace not seen in over a decade.
The Market Brief
In today’s brief we break down why the calm in price action is hiding something far more dangerous beneath the surface.
We cover what the current gamma setup means for volatility going into the second half, and why the dispersion story in tech is far from over.
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