Tech Fears Subside as Dovish Fed Expectations Return

Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

• Tech fears have subsided on the back of increasing expectations of a Fed rate cut (now ~92% implied probability vs. 40% two weeks ago), with the QQQ-SPX 1M implied volatility spread narrowing from a 1-year high of 8% to now just 4.1% (27th percentile low over the past year).
• This can also be seen in the performance of the Cboe^® Magnificent 10 Index (ticker: MGTN Index) which tracks 10 of the largest Tech/AI companies (Mag-7 plus AVGO, PLTR, and AMD) relative to the broader market. MGTN index fell over 11% in November as AI concerns increased while its realized volatility spread vs. SPX^® index jumped to a high of 20%. Since then, the index has rallied back, now trading just 3% off its all-time high and up over 50% YTD (vs. SPX index up 16% and QQQ up 22%).
• Cboe is launching cash-settled options and futures on MGTN Index starting today, giving investors a more precise and efficient way to express tactical views on the AI/Tech theme. For more, see link for options and futures product pages. For those looking to trade volatility, MGTN realized significantly higher volatility relative to both QQQ and SPX index, with the 1M MGTN-SPX realized vol spread ranging from +4% to +29% over the past year (see chart below).

Chart: MGTN Index Volatility vs. SPX Index and QQQ

^{Source: Cboe}

[Download Full Report Here]

[Subscribe Here]