Stocks and Dollar In the Crosshairs with Warsh, CPI, Earnings and More: Markets Week Ahead

In contrast to this past week’s light economic docket, there is a flood of high profile scheduled event risk ahead. Yet, can earnings, inflation, the Fed Chairman’s testimony and more override a strong seasonal gravity?    

Talking Points:

• Risk-leaning markets – like US indices – continue to consolidate near record highs despite headlines that previously stirred volatility like US-Iran military actions  
• Historically, the 29th week of the year averages out the absolute low for the VIX volatility index since its inception   
• Key event risk will speak to influential themes with updates like US CPI, Warsh testimony, bank earnings, Chinese GDP, the UofM sentiment survey and much more   

 

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Everything Looks Copacetic on the Surface    

Market’s look perfectly confident and stable…at least on the surface. While the headlines continue to roil with news of military actions between the US and Iran, speculation around inflation steering monetary policy and AI falling short of the hype; the traditional benchmarks of risk appetite seem comfortable with transitioning into a cruising altitude at ebullient heights. While there is variation across the various standard bearers of market sentiment, they are generally holding close to cycle (or record) highs with their respective implied volatility measures sinking alongside volumes. Sanguine market activity can be interpreted differently against a backdrop of troubling conditions and themes.

The optimist, long-only investor can prioritize price action and translate it to mean that the poor conditions and fundamental backdrop are ‘priced in’ for the majority and not of major relevance for the immediate future. Alternatively, the pessimist can read ‘complacency’ whereby these factors will eventually draw on speculative outlay, but that flight to quality has simply been deferred until there is a necessity to head for the exits. At the end of the day, yield is generated by exposure and trades are dictated by price. There is a state of vigilance that is reasonable in between the dogmatic views of ‘all in’ or ‘all cash’. 

Chart of S&P 500 with Volatility Momentum (Daily)

Source: TradingView.com; John Kicklighter

 

For those willing to discount the familiar fundamental concerns and relegate structural positioning factors as irrelevant, the tempered level of activity through volatility (both actualized and implied) and moderation in activity via volume align neatly to the seasonal norms. Once again, using the S&P 500 as the sentiment proxy, we are moving into the time of the year that historically has averaged the ‘quietest’ conditions of the calendar year. Since the inception of the VIX volatility index just over 35 years ago, the 29th week of the year has averaged out the nadir of the measures annual cycle. While this is a norm, there are various years where we deviated; so it is important to recognize that ‘this time can always be different’. Nevertheless, expectations of ‘summer doldrums’ can have just as meaningful an affect on decision making as say fears over the US-Iran war depending on what path volatility takes.  

S&P 500 Averaged Performance and Volatility by Calendar Week

Source: Standard & Poor’s; John Kicklighter

 

Appreciating the Troubling Structure and Keeping Tabs on the Threats    

While we can maintain a cautious, proactive approach to the market, let’s not overlook the structural issues that underly general conditions. Setting aside the measures that tend to carry a directional implication, as that tends to trigger emotional interpretation or assignment of some virtue, the more foundational activity measures reflect some extremes that don’t align to healthy markets. Over the past weeks, we have been looking at the charge behind the Nasdaq’s implied volatility measure (VXN) relative to its S&P 500 counterpart (VIX) as the premium topped highest not seen in 23 years, coming out of the Dot-com bust. Add to that the difference in the aggregated VIX at a six-month low while the implied volatility of the constituents (VIXEQ) is at a 14-month high – leading to a record 34 point spread since the 2014 inception of the latter. 

That adds concern to the CBOE’s three-month implied correlation index – measuring the correlation among the SPX’s top 50 constituents – hitting a record low suggesting rising instability can be masked at the top market level. Meanwhile, a downshift in measures of open interest or speculative positioning (via futures) for 2026 benchmarks like the S&P 500 emini or WTI oil contract seem to denote lower stakes should there be a speculative shock. However, that may simply reflect a shift in speculative attention like with the rotation from Mag 7 to names more closely hewed to AI needs. Options are one such outlet that has been consistently charged with the 50-day average in aggregated index and equity put and call volume hitting a record high this past month. That hardly seems the picture of quiet with low stakes.   

VIX Volatility Index Overlaid with the CBOE's 3-Month Implied Correlation Index (Weekly)
 
Source: Standard & Poor’s; CBOE; John Kicklighter

 

Hopefully, with a proper sense of caution restored, it is worth re-evaluating the fundamental themes that are still churning in the background. We are starting to see the temperature on some of the more productive drivers of the past weeks and months heating up, and there is some provocative event risk due over the coming week. Thematically, the US-Iran situation seems the most unreasonably discounted factor given the current state of affairs. The rhetoric has diverged significantly from the military actions of the two countries’ since it kicked off at the end of February, but the frustration seems to have pushed the market to treat it as a trivial matter. After various bouts of traffic interference and discrete engagements in the Strait of Hormuz, we now have President Trump stating that the seize fire is over with the heaviest US bombardment of Iranian sites in months while Iran has warned the Strait is closed with attacks on Gulf neighbors. Whether near-term fear or downstream inflation, this matter will have an effect. With less urgency, but still systemically important, we have a seeming sentiment shift in AI value hopes that has also put a crimp on the IPO revival after SpaceX’s debut, throttling one of the few ‘bullish continuation’ bright spots. Alternatively, the tumult of the past six months is starting to show stubborn pressure on inflation measures and a downgrade in growth prospects (from the IMF’s update).  

Google News Search Trends for Key Fundamental Themes

Source: Google Trends

 

A Serious Economic Docket and Particularly Potent 24 Hours   

Fundamental themes usually find their influence revived around meaningfully developments – data or events – that bubble a troubling state back into mainstream focus. That said, the docket over the coming week is laden with potent potential catalysts – data that directly taps into systemic concerns. There are releases that can activate numerous themes of an evergreen or secular nature. Traditional macroeconomic health will be touched upon through official Q2 GDP updates down to more timely measures like retail sales or industrial production. There are various monetary policy highlights from the Bank of Canada’s rate decision to Fed Chairman Kevin Warsh’s testimony before Congress. And, there is the ever-familiar charge – usually for bulls – of the unofficial start of US earnings season with the first run of the major banks. 

Calendar of Major Macro Economic Event Risk
 
Source: John Kicklighter

 

Bank Earnings Try Their Hand at Recharging Volatility   

While it is has yet to pick up on Google Trends’ news search tracker, earnings is likely to be a focus of conversation by financial media and amid investors as we kick things off with the first round of major names issuing there figures. While there are some noteworthy big names through the week – like Netflix on Thursday and Johnson & Johnson Tuesday – the concentration of the major banks will once again carry the greatest potential for broader influence. The names to watch include JPMorgan (14th largest market cap), Bank of America, Goldman Sachs, Wells Fargo and Citibank. Beyond their individual or collective profitability, their performance and forecasts will touch on themes such as AI investment, the health and spending of the US consumer, financial opportunity in IPOs and more. 

Chart of Implied Moves for Companies Reporting Earnings

Source: SpotGamma.com Earnings Implied Move Tool

 

New Fed Chairman Kevin Warsh’s First Semi-annual Testimony  

Monetary policy is a traditional macro theme that seems to be slowly gaining in profile to compete with headline darlings like US-Iran and AI thanks to the shift in the underlying current of this critically important economic factor. The dovishness of 2025 was already starting to level out at the start of this year when the eruption of war in the Middle East gave concern to a genuine shift in inflation to put an earnest hawkishness back into the mix. While some of the major players have already started to hike, the Fed has only allowed for rhetoric thus far. And even that seems a controversial hawkish fuel given that new Fed Chair Kevin Warsh has taken over under the auspices of President Trump’s endorsement alongside a very overt interest for lower interest rates. At his first post-FOMC decision press conference, Warsh spoke to his (eventual) interest in curbing guidance, but that hasn’t capped rate speculation in the markets. This week, he will have to answer questions before the Senate and House in his first semi-annual testimony. While he could dodge journalist questions readily enough, he won’t be allowed the same convenience with lawmakers.  He will likely be quizzed on his commitment to Fed independence, the dual mandate and his views on how current conditions.    

Chart of DXY Dollar Index Overlaid with Implied Fed Funds Change Through 2026 (Daily)

Source: TradingView.com; ICE; CME; John Kicklighter

 

China GDP – Vital Data Taken with a Boulder of Salt      

The US will have more than its share of event risk – Warsh testimony, CPI, retail sales, housing data and the UofM sentiment survey just to name a few – but it isn’t the only major economy with updates of importance. China have its own hefty macro run this week starting with the June lending and trade figures on Tuesday morning. This is timely and important thematically, but it isn’t the top data point for the nation. That comes Wednesday with the release of the country’s official Q2 GDP release. Coming amid a range of other important, monthly stats like housing prices, fixed investment, industrial production and domestic demand figures; the broader growth figure is a more comprehensive overview of the second largest economy. Setting aside the discount investors tend to place on the veracity of the data and its lagging nature, this still stands as a lightening rod for attention and conviction. It would take quite the surprise to actualize this event risk as a major market mover, but its trend is nevertheless important to the mapping of global economic health and balance of financial flows – and thereby worthy of our digesting.   

USDCNH Exchange Rate Overlaid with US-China YoY GDP Difference (Monthly)

Source: TradingView.com; US BEA; China NBS; John Kicklighter

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-- Written by John Kicklighter, Global Head of Content