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Market Outlook

RISK ON GLOBALLY BUT NEED MORE DRIVERS

ADMIN || 11th November 2025

S&P closed 1.5% higher today extending the year-end rally after what looked like brief de-risking last week. Still, sentiment remains cautious amid concerns about consumer resilience. With many of the volatility-dampening forces that fueled this year’s advance now also missing, the market is hardly in the clear.

As with most risk-on days, of the major US indexes, the Nasdaq 100 gained the most, with a rise of more than 2%, followed by the S&P 500 at just over a 1.5% gain. Underlying the move was a deal in the US Senate to re-open the government. That accelerated a risk-on day that was so tentative at first that the equal-weighted S&P 500 was down for large portions of the day.

While Treasuries sold off, the 12-month yield gained more than the yield on the two-year, which in turn was up more than the 10- and 30-year bonds. The belly of the curve remained bid. That mild flattening move isn’t what you would expect to see with an out-and-out risk-on day because, in that case, investors would demand more for cost of holding long-dated Treasuries.

Specific to the S&P 500, this growing uncertainty is seen in the negative gamma backdrop, meaning positioning is amplifying intraday swings rather than dampening them. The lack of builds in longer-term option positioning around current levels creates a fragile, headline-sensitive tape where 0DTE options and other intraday flows dominate.

Volatility dynamics reflect that. The VIX index has eased, suggesting surface-level calm, but implied volatility for options with strikes below the current market level remains firmer, with put skew widening for the SPX. This shows that traders are hedging a wider range of outcomes.

To counter this greater consumer uncertainty and for the rally to meaningfully extend into year-end, this volatility setupneeds to shift back to a more supportive regime. Buybacks, which are set to run heavy into year end, will provide an important source of equity demand and a volatility suppressant. As realized vol falls, volatility-selling strategies remerge, creating a positive feedback loop that has been a linchpin of the post-Liberation Day rally. A calmer tape mechanically triggers inflows from vol-control and risk-parity strategies, a powerful tailwind that can draw in more discretionary participation in a year-end rally.

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