Better Seasonality Ahead

1.) AI – Is it changing the economy? Are there real benefits and revenue for investors to experience/enjoy? Or are the hyperscalers just spending money like a government (irresponsibly)? New research from Exponential View suggests that the GenAI economy is very real. According to them, the GenAI economy has generated $110 billion in sales over the past 12 months. It is growing fast. On an annualized basis, the revenue run rate exceeds $175 billion.

2.) HISTORY – The history of market action is always valuable. Not because it repeats, but because it often rhymes. Some are wondering if there will be a significant slowdown since the market has failed to reach a new high. In fact, the S&P 500 reached a lower high on June 15. Is that it? Is the market signaling something bad coming and an economic slowdown to follow? Great question. Answer? I don’t know. No one does. But I can tell you that the S&P 500 has never peaked for the year in June. This is the only month to never peak for the year. Given the most recent high was on June 2, followed by a lower high on June 15, could this year be the first? My expectation is no. Now, does that mean no volatility? Of course not. In fact, we should expect some short-term volatility.

3.) VIX – In terms of short-term volatility, yes, we should expect some here. Why? Gamma is now negative, which exacerbates short-term volatility. Option expiration is also today, which tends to increase volatility. But let’s also remember that today is the final day of what has historically been considered the weakest week of the year for the stock market. If you’re feeling nervous, this is probably not the day to panic or make emotional decisions. History suggests that seasonality becomes more favorable starting next week. Again, does history always repeat? No…but it tends to rhyme. A VIX (volatility indicator) could tap 21.50, which would likely bring with it a down market. This is just traders buying protection. Look for a day where markets are down with VIX down as well. This tends to signal that traders are taking their hedges off, which is then usually followed by buying.