Deciphering Market Swings: Quadruple Witching and Economic Ripples

The market is still resilient despite nuanced hints from job data that economic fluctuations lie ahead.

• The market is still resilient despite nuanced hints from job data that economic fluctuations lie ahead.
• Quadruple witching and economic releases may amplify market volatility this week.
• Long-term investing plans remain crucial amid uncertainties in bonds, Fed decisions,and stock movements.
  
  

Amid wavering confidence in a five-week winning streak, the markets staged a remarkable resurgence, stretching the rally to a sixth consecutive week. The S&P 500 and Nasdaq Composite not only surged by 0.4% but also marked their year's highest closing records.

Despite a seemingly robust Friday rally, the markets grappled with the nuanced implications of a jobs report that surpassed expectations. Digging deeper into the numbers revealed certain intricacies that cast doubt on the true strength of the job market. Notably absent from the headline figure was the return of striking workers. Discounting the impact of auto workers who resumed their duties diminished job gains to 169,000 instead of the reported 199,000—a deceleration compared to the preceding report citing 180,000 new jobs in October. While the headline appeared promising, skepticism arose regarding whether it truly signaled an impending overheating of the economy.

The week ahead

Although the jobs report served as a catalyst for stock performance, the coming week promises a deluge of economic data, potentially introducing turbulence to the markets. The consumer price index (CPI) report tomorrow and the Wednesday release of the producer price index (PPI) are heightening anticipation. The Fed's announcement later in the week—despite widely expected unchanged rates—leaves ambiguity about its forward-looking perspective. Speculation looms regarding a predicted rate cut in either March or May, posing concern about the rationale behind such a move—whether to counter a slowing economy or to achieve a calculated soft landing.

Monitoring particular stocks, Coinbase (COIN) notably surged by 7.7% in sync with soaring bitcoin prices, while Occidental Petroleum (OXY) announced a $12 billion acquisition of privately held Crownrock, causing a 10% premarket dip in Occidental shares. Management at Macy's (M) hinted at an 18% premarket increase because of a $5.9 billion offer from Arkhouse Management to privatize the department store at $21 per share.

The week ahead is also marked by quadruple witching, involving the expiration of equity options, futures, options on futures, and futures index products. This convergence, coupled with the influx of economic data, foreshadows greater potential volatility than in previous weeks. Bond market movements, particularly the two-year yield surging by 14 basis points on Friday and an additional six basis points in premarket, alongside a 6% premarket hike in The Chicago Board Options Exchange's volatility index (VIX), demand attention as the year draws to a close.

Uncertain times

In navigating these uncertain times, adhering to investing strategies and long-term objectives remains paramount. The dynamics of economic data, market forces, and potential catalysts make it imperative that investors to stay vigilant and resolute amid possible market swings.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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