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Good Morning! Another slow market day yesterday, but there should be some vol expansion over the next couple of days, as shown in the premarket. Several liquidity modelers showing we are overdue for a pullback, and any vol expansion will be bearish thanks to positive vanna.
Recently in my discord, I have been previewing earnings reports, both from #volland and @optionrats, and there is a loud, consistent theme... lower profit expectations, lower event vol. Across all sectors, all major companies particularly non-growth companies have lower earnings.
It isn't by a little bit either. $XOM, $BA, $MSFT, $CMG, $META... all of them are seeing reduces profits. Yet markets are floating up, increasing multiples to very high levels. Part of that is dealer hedging, but ultimately this will result in deflation.
I see a lot of predictions that inflation will be down to 2% by EoY, 3.5% by the summer. These earning reports are saying something else... I think CPI will show deflation by EoY. Negative readings on CPI, which would challenge the "higher for longer" narrative.
Negative readings would result in cuts from the FOMC, which is what the bond market is already forecasting. Again, the 1921 Depression is the historical template I'm following. Once this happens, we would see a buyable dip that can last several years.
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