The key to what’s driving the stock market is the 2-year yield and that’s trending lower
Are stocks moving on the basis of macroeconomics (the Fed and interest rates ) or are earnings driving the action? Both matter, but macro is dominant. On a day when Microsoft, Alphabet and Texas Instruments are all trading down 5% premarket on disappointing earnings , the S & P 500 is only down about 30 points pre-open. The key is that the 2-year yield (a proxy for Fed intentions ) is down again Wednesday and has been trending downward the last 4 days. Not surprisingly, the S & P has rallied about 5% since the close last Thursday . Another data point: the CBOE Volatility Index (VIX) is flat today and has been trending down for two weeks. Why? The VIX measures expected volatility in the S & P 500 looking 30 days out. The two big events in the next 30 days already have outcomes that are expected. First, the Fed meeting Nov. 2, where it is widely expected the central bank will hike rates 75 basis points (0.75 point), and the Nov. 8 election, where it is widely expected the Republicans will regain control of the House of Representatives . As a result, the VIX “curve” (the futures contracts for the next several months) is showing a more normal upward curve: VIX futures contracts November: 28.4 December: 28.5 January: 29.4 February : 29.3
