VIX ramps to short-lived extremes ahead of inflation data and a busy earnings slate

👋 Hello and welcome to Monday! 🌅 

Here’s what we’re watching:

• Historically, VIX readings > 30 tend to persist for days rather than weeks.

• Inflation data arrives just before the Fed’s rate decision.

• Housing reports will test whether the long-awaited real estate rebound is finally materializing.

• AI momentum faces an earnings test as Oracle, HPE, and Adobe report.

• Dollar General headlines a fresh read on budget-conscious consumers.

Let’s get a move on! 🏃‍♂️‍➡️🏃‍♂️‍➡️🏃‍♂️‍➡️

🔍 CPI lands right before the Fed huddle

This week’s economic calendar has a clear theme: prices. Fresh inflation readings arrive just days before the Federal Reserve meets to decide its next move on interest rates. Wednesday brings February’s Consumer Price Index after January surprised on the softer side, while the Personal Consumption Expenditures report later in the week will give policymakers their preferred look at price pressures.

The data comes as Fed officials remain divided on whether borrowing costs should move lower this year after holding rates steady at the last meeting. Meanwhile, the housing market also gets a temperature check with existing-home sales and housing starts on deck, alongside earnings from builder Lennar. Investors will also watch trade data and consumer sentiment surveys for clues on whether recent geopolitical tensions are beginning to shape spending behavior.

💵 What’s the market pricing in for the week ahead?

Although the benchmark S&P 500 has seen some violent intra-week drawdowns in recent weeks, they have all been bid as the index tested the bottom of the weekly expected range. Let’s see what this week brings.

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📈 This week’s earnings put AI, retail, and EV demand under the microscope

Corporate earnings will offer another window into where the economy and a few major investment themes stand. Software names are front and center, with Oracle, Adobe, and Hewlett Packard Enterprise reporting. Investors are especially interested in what these companies say about artificial intelligence spending and the demand outlook for data infrastructure.

Retail will provide its own signals about consumer health. Dollar General headlines the week, with investors curious whether discount chains are still benefiting from stretched household budgets. Campbell’s, Ulta, and Petco also report, adding color on spending trends across food, beauty, and pet care. Meanwhile, Chinese EV makers Li Auto and Nio will release results, offering another read on competition in the global electric vehicle market.

🤔 Which companies are poised to possibly over- or underreact to earnings this week?

The largest company to report earnings this week, Oracle, has a history of trading well outside of the market makers’ expected range during the trading session immediately following earnings (keep reading below the next table for more details on how this is calculated).

In fact, of the 20 largest companies reporting earnings this week, Oracle’s tendency to overshoot the implied price range immediately following earnings is also the greatest.

On the other side of the coin, of the top 20 companies reporting this week, KT shows the greatest likelihood of staying inside its post-earnings expected range (keep reading below the next table for more details).

👇 Below is a look at this week’s biggest earnings reports, sorted by market cap:

This week, volatility is clustering where the market tends to feel it most.

Consumer discretionary (XLY) currently tops the implied-volatility leaderboard, with investors watching this week’s retail earnings reports and consumer-spending data for clues on demand resilience.

Close behind is the energy sector (XLE), where traders will be tracking Middle East developments and oil supply headlines that could keep price swings elevated.

Financials (XLF) round out the top three, with attention turning to interest-rate expectations and Treasury yield moves.

At the calmer end of the spectrum, the traditionally defensive corners of the market are showing the lowest implied volatility. In Utilities (XLU), investors will watch Treasury yields next week since rate moves tend to drive relative demand for dividend-heavy sectors.

Consumer staples (XLP) follow closely, with traders focused on pricing power and any signals about consumer trade-downs.

Real estate (XLRE) rounds out the list, where the key variable next week will be interest-rate expectations and how they influence financing conditions for property owners and prospective buyers.

Monday

• Top Earnings: Hewlett Packard Enterprise, Casey’s General Store, Vail Resorts

Tuesday

• Existing home sales

• NFIB small business optimism index

• Top Earnings: Oracle, AeroVironment, Nio

Wednesday

• Consumer Price Index

• Monthly U.S. federal budget

• Top Earnings: Campbell’s, UiPath, Petco

Thursday

• U.S. trade deficit

• Initial jobless claims, Housing starts

• Top Earnings: Adobe, Dollar General, Ulta Beauty, Lennar, Dick’s Sporting Goods, Li Auto

Friday

• Personal Consumption Expenditures price index

• Gross Domestic Product, Durable goods orders, Job openings, Consumer sentiment - preliminary

Volatility, in the form of the Cboe Volatility Index (VIX), is nearing historic extremes above 30 this morning, ahead of the open of cash S&P 500 trading this week. Typically, the time spent above such levels is measured in days, not weeks.

Although market nerves should soon reach a crescendo, for now conditions remain for daily price moves to extend well beyond what’s been normal over the past 12 months.

📋Here’s a curated list of top value-added insights that uncover what’s happening way beyond the usual financial media headlines.