DSPX Index Nears 3Y High as Focus Shifts From AI to Trade

Mandy Xu
February 3, 2025

Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

  • Implied volatilities are up pre-market as US imposed tariffs on Canada, Mexico, and China over the weekend. USDCAD 1M implied vol has almost doubled since the election, up another 1.3 pts last week to a 2-year high of 8.6%. Notably, fears of escalation are also increasing, as Trump threatens tariffs on other regions. EURUSD 1M implied vol jumped 1.1 pts to 8.5% this morning. 
  • All eyes were on NVDA last week as AI stocks tumbled on the back of DeepSeek, with NVDA 1M implied volatility almost doubling to a high of 77%, driving a 3.6 pt wk/wk increase in the VIXEQ Index (avg weighted single stock vol). SPX® implied dispersion increased as a result, with the DSPX Index jumping to near a 3-year high of 37.2% (NVDA alone driving over 50% of the move, see chart below).
  • As Trump kicks off his trade war this time, S&P implied correlations are currently near record lows across tenors – suggesting very little macro fear priced into the equity vol markets. This is despite the potential for tariffs to significantly impact economic growth & inflation. Last time Trump started his trade war with China in 2018, realized correlation almost tripled from 15% to 40%. Currently, SPX 1Y implied correlation stands at just 18%.

Chart: NVDA Drove Over Half of the Increase in Dispersion Last Week

Source: Cboe

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