Stocks End on Highs Despite Chicago PMI Implosion

The S&P 500 rose +0.25% to 1597.57, a new record high for the index, as consumer confidence gained and speculation continues that central banks will continue their efforts to stimulate the global economy. The month of April finished with the index +1.8% higher, the sixth monthly advance and longest such streak since Sept. 2009. The Chicago PMI released today bodes poorly for the economy, and stocks sold-off following the report, only to recover a few minutes later. Read more about the Chicago PMI release here. We are in a bad news = good news phase as we anticipate the FOMC continuing its current stimulus and the ECB cutting rates on Thurs.

Risk-on trades dominated the session, with oil being the exception. Light crude futures sold off -0.35%, while copper squeaked out a +0.14% gain, and gold rose +0.21%. Treasuries were flat on the day, with futures spiking during the few minutes following the PMI release, only to return to even for the day.

Take a look at the e-minis and the VIX’s reaction today:

E-Mini's & VIX ThinkOrSwim(r)

E-Mini’s & VIX ThinkOrSwim(r)

My point at looking at these two side-by-side is this: Protection against the downside is CHEAP! Let’s take a look at the VIX term structure:

VIX Term Structure vixcentral.com(r)

VIX Term Structure vixcentral.com(r)

The curve looks normal. The market is in contango (front month more expensive than back month), but you can go out to to Sep. and buy protection for 3.7 points above VIX cash. There is no reason to not have some protection when we keep hitting new highs on the equity indices every day. It’s just good business.

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