US Stock Market Overview – Stock Fall and the VIX Spikes Ahead of 2020

US stocks moved lower on Monday as trader’s continued to rebalance their position ahead of the new year. The S&P 500 index notched up a robust 2.5% month to date ahead of the last trading day of the year. The selloff appears to be some profit taking, which might continue into the first half of 2020. The VIX volatility index surged 10.5% on Monday, hitting the 200-day moving average at 15 for the first time in 2-weeks. US pending home sales climbed 1.2% from the previous month, missing the median forecast. Most sector in the S&P 500 index were lower, led down by communication and healthcare. Utilities bucked the trend. For the month of December, most sectors were higher, led by a surge in Energy shares that could close up 9.75% for the month, while real-estate bucked the trend and is down approximately 0.25% month to date.

Volatility is Rising

The VIX volatility index spent the second half of December in the red, as stocks rose to all-time highs and complacency settled-in. Over the past two trading session, the VIX has soured, rising nearly 11% on Monday, and testing key resistance levels near the 200-day moving average near 15. A break above this level on the VIX would likely coincide with a selloff into the new year.

Commodities Could Create Issues for the Fed

Commodity prices have been on the rise, buoying both energy and mining stocks. Crude oil prices have been lifted by a combination of supply shortages and a falling dollar. US yields have been easing relative to European yields which has weighed on the greenback. If the dollar continues to fall and intermediate goods inflation rises just as wages are rising the Fed could be put into a position to raise rates. Higher rates during an election year becomes difficult for a central bank. The Fed has already faced heavy pressure from President Donald Trump and there is the chance that the Fed and the market become dislocated as the market begins to price in Fed hikes, while the Fed is sitting on the sidelines waiting for the outcome of the 2020 election.

US Pending Home Sales Rose

US pending home sales climbed 1.2% from the previous month, missing expectations.  This reflects the market’s turnaround from last year’s weakness, contract signings jumped 5.6% from November 2018.