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How Did Large Speculators React to Last Week’s Events?

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How Did Large Speculators React to Last Week’s Events? PART 1 OF 7

Will Tax Reform or Flynn Controversy Impact Volatility This Week?

Volatility in markets jumped higher last week

Global markets were mixed last week amid uncertainty about the US tax bill. News also surfaced about former national security advisor Michael Flynn pleading guilty to lying to the FBI, which could put the Trump administration in jeopardy. At the end of the week, news about the tax bill being approved was reported, and only one Republican party member voted against the tax overhaul. The differences between the House and Senate bills need to be reconciled, and the final approval vote is expected to be completed before the Christmas holidays.

Will Tax Reform or Flynn Controversy Impact Volatility This Week?

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US market performance

US market performance was a roller coaster ride last week. News reports from the Senate tax reform discussions, the reported confessions of Michael Flynn, and President Trump’s tweets elevated market volatility. Indexes, however, closed the week in positive territory with the S&P 500 (SPY) Index appreciating 1.6%. The Dow Jones Industrial Average (DOD) rose 2.8%, and the tech-heavy NASDAQ (QQQ) dropped 0.45% for the week ending December 1.

The US bond market (BND) and the US dollar (UUP) remained on edge as uncertainty about tax reforms existed at the close on Friday.

VIX Index speculators continue to bet against volatility

VIX (VXX) bounced back from lower levels as uncertainty gripped markets. The S&P VIX 500 closed at 11.43, rising by 18.2% last week. As per the latest commitment of trader’s (or COT) report, released by the Commodity Futures Trading Commission (or CFTC), large speculators have increased their overall net short positions from 102,956 contracts to 114,762 contracts in the previous week. This report was published on December 1 and contains data through Tuesday, November 28. The events that unfolded after November 28 could have decreased speculators’ short positions.

In the remaining parts of this series, we’ll discuss the outlook for different asset classes for this week.

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