Mott Capital Management, LLC

As the year comes to a close, with just about two weeks left, there is going to be plenty of news flow with consequences for global markets.

Regardless of the broader debate, one thing does seem clear: if the Fed were truly on the verge of launching a new QE program — someone forgot to tell the three-month Treasury bill.

The middle of this week saw a volatile trading session, with the S&P 500 finishing up about 40 basis points. And then there was Nvidia doing its usual song and dance with the beat-and-raise routine it trots out every quarter.

The credit spreads on the CDX High-Yield Index widened, which is noteworthy because stocks and credit spreads generally tend to move in the same direction. It also seems that free cash flow for stocks does matter.

The S&P 500 fell by more than 2.7% on Friday, which came as a big surprise to many. While the size of the decline was certainly unexpected, the change in trend was not. So what can one expect to see next?

Dispersion remained the theme, with the Dispersion Index still elevated. While it could rise further, it’s something to watch—high dispersion typically coincides with low correlations.

It’s unusual to see both the Dispersion Index and the Implied Correlation Index up at the same time - but stock implied volatility is climbing faster than index-level implied volatility. This is likely because risk is being repriced.

The market spent the session waiting for Nvidia, with hedges being put on throughout the day, which is why the VIX 1-day rose from around 8 to 15.

There will be three large Treasury settlements on Tuesday, Thursday, and Friday. One can only make an educated guess as to where the funding will come from. Will the reserves take a hit?

This week brings numerous critical events, including key economic reports, significant Treasury auctions, major central bank decisions, high-profile earnings, and a court case reviewing presidential tariffs.

It’s not often that you get a clean sweep of bullishness across the board. But when all of these indicators rise simultaneously, it typically isn’t associated with rising stock prices; one would expect stocks to decline.

Markets are strange animals: just when everything seems perfectly aligned for a particular outcome, they have a way of knocking you down. The upcoming week will be short but busy, packed with economic data and potential surprises.