Ignore The Noise...The Stock Market Has Gotten Cheaper During This Rally.

1) VIX – A Monday jump in the VIX, like today’s 11% move to the highs (18.94 at 5 AM), often means nothing - it’s a mechanical Monday effect that usually gets given back later in the week. What matters is the VIX front-month future, and it has barely moved, showing no real stress. This is also why using VIX for hedging right now makes little sense. There is a large gap between VIX spot (17.69) and the first-month future (19.55). Option pricing is driven by the future, not spot, so the front month is unlikely to move much until that gap closes, acting as a cushion against real volatility. What does that all mean? Lower realized volatility is good for risk assets.

2) CHEAPER – Despite its +5.12% gain, the S&P 500 has gotten -6% cheaper this year, but tech in general has seen the largest valuation contraction. Ignore the noise that this market is “expensive.”

3) INFLATION – Inflation remains on everyone’s mind. Understandable. So far, the bond market isn’t telling us that inflation is going to relent in the near term. Oil and Inflation Protected Bonds tend to move together. They moved together at the big turning points in history: the 2009 lows after the Great Financial Crisis, the 2016 washout, and the 2020 COVID-19 crash. In every one of those cases, bond market spreads and crude oil bottomed together. The same thing happened at the highs, including the peak in 2022 and the earlier tops before that. On Friday, I showed you a long-term picture of Oil where it had major tops in 2008, 2022, and potentially now in 2026. However, one thing that is important to recognize is that while Oil and the bond market tend to move together, bonds tend to reach the turning points first. I’ve shown you the relationship between Inflation Protected Bonds (TIP) and 7-10 YR Treasurys (IEF), and this relationship is indicating “higher inflation” as it pushes to new highs. The bond market is huge. It tends to be right. So even though Oil has tapped the top of that trend range that I pointed to on Friday, this bond relationship is pushing higher. Now, to be fair, this bond ratio is overbought and certainly due for a correction. But it would have a ways to go before signaling a breakdown and a relief to the inflationary pressures. This is the one to watch for the first clues of inflation breaking down.