While a repeat of last week is no guarantee, it’s interesting to see the Cboe Volatility Index (VIX) again bouncing above 24 on Monday before easing a bit this morning. It was the second Monday in a row where volatility popped, but last week it spent Tuesday through Friday retreating even as chaos erupted in Washington. Could the VIX pull back again this week? You can’t count it out, but any close above 25 or flirtation with 30 could signal that stocks might be in for more pressure, judging from recent history. Also, the futures complex looking out to February and March shows investors betting on higher volatility, not lower. 

Monday’s slump didn’t extend to Treasury yields, which continued forging new 11-month highs. It was kind of an odd way to start the week, with signs of caution dogging mega-cap stocks and lifting VIX but also some selling of bonds. Maybe investors are trying to position themselves for whatever might happen as earnings season looms, starting with Delta (DAL) and many big banks later this week. It’s not rare to see consolidation and position squaring at times like these, and the tension in D.C. could also have people a little confused about which way to lean. 

Retail shares like Kohl’s Corporation (NYSE:KSS) and Macy’s Inc (NYSE:M) also had a nice start to the week, which might have reflected people trying to get in at current low levels. Retail sales for December come out Friday and that could give investors more insight into consumer spending that helps drive these stocks.

On the corporate front, KB Home (NYSE:KBH) is scheduled to report after the close today. KBH and many of its competitors rolled up some gains Monday despite the recent climb in Treasury yields that can sometimes signal higher mortgage rates. The latest new homes data for November showed a sales decline from October but a more than 20% rise year-over-year, meaning it’s probably fair to say housing’s still hot. KBH could provide investors some foundational views on mortgage rates and future demand when it reports later. Stay tuned. 

CHART OF THE DAY: THE STUFF THAT COMES FROM THE GROUND. Commodity indices such as the Bloomberg Commodity Index ($BCOM) had been in a bit of a downtrend well before the 2020 COVID economy, and like much of the market, things really fell apart last spring. But like corn, crude, and other commodities that spring from the ground, BCOM popped its head above the soil in recent days. Data source: Bloomberg. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Stocks entered Monday with the S&P 500’s (SPX) forward price-to-earnings (P/E) ratio close to 25 by some estimates vs. the next 12 months of earnings. That’s not “dot-com” territory, but it might be making people think. Earnings season is almost here and that’s when many companies, including some of the high-flying Tech ones, will be putting their mouths where their money is, so to speak. If earnings come in worse than expected, any companies with particularly high valuations and disappointing results could face pressure. 

Not Ready for Prime Time? Bitcoin futures (/BTC) had a rough start to the week, dropping 20% at one point before bouncing a bit to down “only” 13%. Today, in the overnight hours, /BTC has had a $3,000 trading range. It’s the dichotomy of bitcoin—part of the narrative is an alternative to traditional currencies such as the dollar as a medium of exchange and store of value, but its volatility would seem an impediment to getting there. Remember: /BTC was launched right around the previous high of 20,000, and within a year had bottomed out around $3,000. Then it shot back up to $14,000, down to near $4,000, and after taking out the old high, within a month it doubled in four weeks to above $42,000. That’s volatility.  

It’s interesting (some would say ironic) that yesterday’s selloff came right as exchange operator Intercontinental Exchange Inc (NYSE:ICE) announced it would be introducing its digital payments venture Bakkt to the public markets via a special-purpose acquisition company (SPAC). Bakkt and other digital platforms aim to position themselves for a possibly all-digital future. But if the future includes a migration to cryptocurrencies such as bitcoin, volatility could be a major stumbling block. Look at those numbers above and consider a business owner trying to manage income and expenses amid such volatility—or an investment analyst trying to make projections. This isn’t to say we won’t get there someday, but we’re not there yet.  

Are Commodities Poised for a Supercycle, and Should You Care? Commodities. You know, all the things we process to make the stuff we consume—metals, grains, livestock, energies, currencies, and your morning cup of coffee (don’t forget the cream and sugar). Commodities are popularly considered a strong diversification “return source,” meaning they tend not to march in the same direction as the stock market. The thing is, from July 2008 to April  2019, the S&P Goldman Sachs Commodities Index showed a harrowing plunge of around 75%. But then after hitting its low last April, somehow it managed to pull off a V-shaped recovery. How far might it go? 

Investment bank Goldman Sachs Group Inc (NYSE:GS) recently claimed that we’re seeing the beginnings of a commodities supercycle, and we’ll have to wait and see if they’re right. A supercycle can be a decades-long mega bull that encompasses a wide range of asset classes, in this case, a large swath of commodity markets. As an equities investor, why should you care? Maybe you’re looking to diversify in an area that might have potential for growth. Maybe the demand for commodities might mean changes in the jobs market. Or maybe the rise in commodity prices might affect the price of goods and profit margins of the companies that produce them. Certain sectors (Energy, Materials) tend to be more exposed than others to commodity prices. It’s something to think about even if you aren’t ready to dive into the pork belly market.