The economic calendar is about to get a lot busier
Investors are betting that stock-market volatility will pick up later this month.
After an eventful summer, U.S. stocks appear to have hit a pocket of calm. Over the past few sessions, trading volume has dwindled, while major indexes have mostly drifted sideways.
Investors should enjoy the quiet while it lasts. Because the options market is apparently bracing for an outbreak of volatility beginning later this month. In commentary shared with MarketWatch on Monday, Matt Amberson, founder of ORATS, called this period "the calm before the storm."
According to a Dow Jones Market Data analysis of options pricing data, expected daily swings in the S&P 500 SPX are expected to increase by roughly 50%, on average, beginning on Oct. 28, as the Federal Reserve announces its next decision on interest rates. What follows is a series of potentially market-moving catalysts. The main event will be the Nov. 3 midterm election. The busy period will conclude with the Nov. 6 jobs report for October.
"Macro catalysts are few and far between for now, with Wednesday's CPI report a notable highlight. But options traders are bracing for more action beginning later this month, as investors run a gauntlet of catalysts including Fed Day, a number of key earnings reports, the midterm elections and the October jobs report," Amberson told MarketWatch via email.
The Cboe Volatility Index VIX, known as Wall Street's "fear gauge," has been trending lower for months, even as individual names within the S&P 500 have tallied some big swings, as stocks in different sectors have increasingly moved in different directions.
This intense dispersion beneath the surface has helped to keep a lid on volatility at the index level. When stocks linked to the booming artificial-intelligence trade have struggled, so-called "non-AI" stocks have ridden to the rescue, and vice versa.
Whether this string of potentially market-moving catalysts might be enough to drive volatility at the index level remains to be seen. Many investors have been surprised by the fact that large-cap indexes like the S&P 500 have held up, even as Treasury yields BX:TMUBMUSD10Y have climbed to their highest levels in decades.
Rising bond yields have heaped pressure on small-cap stocks RUT, and other more interest-rate-sensitive corners of the market. But the AI trade has mostly endured, as investors have instead focused on booming earnings forecasts.
Big gains for AI-linked megacap stocks like Meta Platforms (META), Nvidia (NVDA) and Microsoft (MSFT) have done much of the heavy lifting, even as many other individual stocks in the S&P 500 have fallen by 10% or more from recent highs.
As of Monday, the S&P 500 hadn't seen a daily drop of 1% or more in 52 straight trading sessions. One more day, and this will be the longest stretch without a notable pullback since January 2020, according to Jonathan Krinsky, a top technical strategist at BTIG. Low trading volume has likely contributed to the listless price action, he said.
"We are in the lull between major macro data/catalysts and earnings season. There hasn't been any major new macro news to drive things, and investors are content to see the banks start reporting later this week before making any new decisions," Krinsky wrote in a report shared with MarketWatch.
"The lack of index-level volatility has gone on longer than we, and many others, would have thought," he added later.
On Tuesday, the third-quarter earnings season is expected to really swing into gear as the biggest banks in the U.S. start reporting their results.
It has also been a while since the S&P 500 experienced a correction, typically defined as a drop of 10% or more from a recent high. As of Monday's close, 552 trading days have passed since the most recent correction ended, according to an analysis by Bespoke Investment Group. The most recent correction began in the early days of President Donald Trump's second term and culminated in early April 2025, as the index skidded to the edge of bear-market territory following Trump's "liberation day" tariff rollout.
The current 552-day streak without a correction is the 12th-longest since 1950, Bespoke said. It is also more than twice as long as the average gap of 246 days between corrections, going back to 1928.
U.S. stocks finished mixed on Monday, with the Dow Jones Industrial Average DJIA climbing, while a selloff in the tech space weighed on the S&P 500 and Nasdaq Composite COMP.
Ken Jimenez contributed
-Joseph Adinolfi
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