Looking to the Futures
Tariff Negotiations Induce Volatility Reversion

Equity markets have rallied significantly off their April 7th lows with the E-mini S&P 500 Index futures (/ES) moving 1068.75 point higher (4832 low versus 5900.75 settlement value) signifying a 22.12% gain in just over a month. This move can partly be attributed to a successful earnings season, the Federal Reserve injecting liquidity into the marketplace through open-market operations, and continued negotiations/deal-making between countries regarding tariffs and trade partnerships.
As a result, we have noticed the CBOE Volatility Index Futures (/VX) revert to their mean at a historic pace not seen in recent history. /VX reached a high of 44.01 on 04/09 and only 35 days later now sits at a current price of 18.41 representing a roughly 58% decrease off its highs. For comparison, during the peak of Covid-19 turmoil we saw /VX hit a high of 80.85 on 03/18/2020 and it took almost a year until 03/16/2021 to break back below 20 again. Similarly, during the financial crisis of 2008 we saw /VX hit a high of 69.4 on 10/16/2008 and it did not break below 20 until 01/08/2010.
Prior to last week’s Federal Open Market Committee (FOMC) rate decision where they decided to keep the same target rate at 425-450 basis points, there was a 20.47 billion purchase by the SOMA (System Open Market Account). This account is managed by the Federal Reserve Bank of New York and it contains dollar denominated assets acquired through their open market operations. This purchase marked the largest single day purchase since 2021 when Jerome Powell introduced quantitative easing programs in response to Covid 19.
Yesterday, we saw U.S. President Donald Trump announce that he would lift all sanctions in Syria and Saudi Arabia gave a 600-billion-dollar commitment for new investment in the U.S. In return, Saudi Arabia will receive a nearly 142-billion-dollar arms package labelled as a “defense cooperation agreement,” per the White House. We also saw China reach a deal with the U.S. over the weekend slashing recent tariff increases on both ends with a 90-day pause. U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer announced this from their trip to Geneva over the weekend.
Technicals
Looking at the daily chart for the CBOE Volatility Index (VIX) Futures (/VX) we see a stark decrease in volatility now trading below all its simple moving averages (50-day, 100-day, and 200-day SMA). The 14-period Relative Strength Index approaches oversold at 35.5867. Contract volume traded and open interest have both decreased since the April 9th high. It is important to take into consideration that the CBOE Volatility Index is calculated measuring expected volatility on S&P 500 index options with expiration dates between 23 and 37 days, so technical analysis should be approached differently.
According to the CFTC Commitment of Traders Report released May 6th Asset Manager/Institutional increased both long and short positioning over the prior week by just over 10000 contracts total. We saw Dealers and Intermediaries increase their net long positioning by 2103 contracts and reduce short positioning by 5,362 contracts which represents short covering.

Contract Specifications

Economic Calendar
Wednesday May 14th
5:15 AM ET- Fed Governor Christopher Waller speech
9:10 AM ET- Fed Vice Chair Philip Jefferson speech
5:40 PM ET- San Francisco Fed President Mary Daly speech
Thursday May 15th
8:30 AM ET- Initial jobless claims
8:30 AM ET- U.S. retail sales
8:30 AM ET- Core PPI (producer price index)
8:30 AM ET- Empire State manufacturing survey
8:30 AM ET- Philadelphia Fed manufacturing survey
8:40 AM ET- Fed Chairman Jerome Powell speech
10:00 AM ET- Business inventories
2:05 PM ET- Fed Governor Michael Barr speech