Bond volatility surged to 106.61, the highest level recorded in this dataset; on the same day, the VIX closed at 16.39, while the one-day VIX was only 11.69. Historically, their correlation has been around 60% to 70%—now it’s broken.
Meanwhile, SPY’s single-stock dispersion has fallen below the 40th percentile. The five-day average is at the lowest continuous reading since early 2024—stocks aren’t diverging; they’re moving together, rising and falling in lockstep. So instead of picking stocks, capital simply buys the index.
What supports this whole logic is positioning and the calendar: according to public discussions, CTA long positioning’s Z-score fell from +2.35 at the end of August to -0.80, a range of more than 3 standard deviations over a month. About $1.3 trillion in share repurchase authorizations will restart gradually once the quiet period ahead of the Q3 earnings ends. In the fourth quarter of a midterm election year, the S&P has averaged a 5.6% gain since 1930, approaching roughly twice the 2.9% average return across all years.
But the bearish side also has numbers to account for: the S&P is currently priced at 18.3x forward earnings for 2027, assuming that the 2028 EBITDA profit margin reaches 28.7%—where the 20-year high is only 20.8%. The free-cash-flow-to-EBITDA ratio has slid from 48% to 41% over two quarters.
So the issue isn’t who’s right, but who will admit it first: if the bond market is correct, how long can the VIX at this price hold up?
Meanwhile, SPY’s single-stock dispersion has fallen below the 40th percentile. The five-day average is at the lowest continuous reading since early 2024—stocks aren’t diverging; they’re moving together, rising and falling in lockstep. So instead of picking stocks, capital simply buys the index.
What supports this whole logic is positioning and the calendar: according to public discussions, CTA long positioning’s Z-score fell from +2.35 at the end of August to -0.80, a range of more than 3 standard deviations over a month. About $1.3 trillion in share repurchase authorizations will restart gradually once the quiet period ahead of the Q3 earnings ends. In the fourth quarter of a midterm election year, the S&P has averaged a 5.6% gain since 1930, approaching roughly twice the 2.9% average return across all years.
But the bearish side also has numbers to account for: the S&P is currently priced at 18.3x forward earnings for 2027, assuming that the 2028 EBITDA profit margin reaches 28.7%—where the 20-year high is only 20.8%. The free-cash-flow-to-EBITDA ratio has slid from 48% to 41% over two quarters.
So the issue isn’t who’s right, but who will admit it first: if the bond market is correct, how long can the VIX at this price hold up?