S&P 500 new highs and rates

Post-CPI and PPI, the futures market is showing a meaningful shift in the expected path of rates.

A week ago, a rate increase was the most likely scenario.

• • Today, the probability of that outcome has fallen to 34.6%.
  • In this context, a repricing across assets would normally be expected, particularly among rate-sensitive segments.

Intermarket analysis: The Bigger Picture

Before breaking the market down by regime, the broader structure matters.

• Among the conclusions from Sunday’s report, the most relevant was the growing fragility of the market, particularly in equities.
• Volume has continued to deteriorate week after week, with participation moving progressively further below its historical average.

Expanding the analysis across the 4W→1W→1D windows makes the picture clearer.

• Across that sequence, Gold remains the relative leader, maintaining positive returns despite persistently depressed volume.
• The S&P 500 continues to post positive returns, but those returns are progressively weakening as volume contracts further.
• The U.S. Dollar also improves on the return axis without a corresponding recovery in participation.

The common signal is not accelerating price strength, but positive returns being sustained on increasingly thin volume, leaving the move structurally fragile and still lacking confirmation from capital commitment.

The Structure Behind SPX

Mainstream media, focused on the S&P 500’s new highs, are missing the structural picture—particularly what has been developing across the 4W, 1W, and 1D windows.

Breaking Down the Regimes

• Risk Off / Crisis. Across the 4W-to-1W window, the strongest relative returns are concentrated in defensive and stress-oriented regimes.
• Full Crisis leads at +1.23σ in 4W and +0.87σ in 1W, while Risk Off and Credit Crisis also remain firmly positive.
• More importantly, these same regimes are experiencing the least severe volume contraction relative to their own historical norms.
• Participation remains weak in absolute terms, but capital is holding up comparatively better where the regime structure is defensive.
• Risk On / Positive Regimes. The opposite is visible in Goldilocks and Risk On. Returns remain positive, but only marginally so, near +0.2/+0.3σ across 4W and 1W.
• At the same time, these regimes show the deepest volume deterioration in the matrix, with 1W readings near -2.5σ and 4W near -1.7σ.
• Price is advancing, but the regimes that should normally confirm a healthy expansion in risk appetite are showing the weakest relative participation.

The key signal is therefore not simply low volume, but where the remaining participation is concentrated. For now, the internal regime structure remains defensive despite positive headline price action.

The Most Important Question: Where Is Volatility Now, and Where Is It Going?

VIX is currently near -1.5σ, while MOVE remains close to neutral at roughly +0.1σ, leaving the MOVE–VIX spread near +1.7σ. The divergence is being driven by unusually compressed equity volatility rather than acute stress in rates.

• With MOVE already near its mean, the asymmetry increasingly favors a normalization higher in VIX unless rate volatility falls materially below average.

• Hedging remains cheap, with VIX near -1.5σ and VVIX around -0.8σ.
• In a market already showing weak participation and defensive internal leadership, that creates an asymmetric opportunity to hedge before volatility normalizes.
• This view is supported by historical behavior, but primarily by the statistical extremes in the spread between the two variables.
• Mean reversion should eventually occur, and given the extreme current reading in VIX, it is statistically more likely that VIX will be the variable that adjusts.

Course of Action