US Daily Financial Risk AAR
August 13th, 2025
Day in Review
Wednesday's trading session delivered a powerful continuation rally that shattered consolidation expectations, as the S&P 500 surged to a fresh record close of 6,466.58 (+0.32%), exceeding the predicted 6,380-6,440 consolidation range while completely avoiding the 35% probability correction scenario. The anticipated small-cap outperformance materialized with stunning clarity as the Russell 2000 rocketed 1.98% higher, validating the overweight recommendation and confirming the rotation into rate-sensitive sectors ahead of Friday's Trump-Putin summit.
Overview of Observed Events
Equities: S&P 500 (^GSPC) closed +0.32% at 6,466.58, Nasdaq Composite (^IXIC) +0.14% at 21,713.14, Dow Jones +1.04% at 44,922.27, Russell 2000 +1.98% at 2,328.00
Fixed Income: 10-year Treasury yield fell to 4.24% (-6bps), 30-year yield at 4.88% (-2bps), 2-year yield dropped to 3.73% (-2bps)
Commodities: WTI crude -0.82% at $62.65, Brent crude -0.74% at $65.63, Gold +0.30% to $3,357.85/oz, Natural Gas +0.16% to $2.83
FX: DXY -0.35% to 97.74, EUR/USD +0.42% to 1.1678, USD/JPY -0.34% to 147.35, GBP/USD +0.52% to 1.3572
Volatility: VIX -4.4% to 15.84, trading range 15.58-16.52, lowest levels since late December 2024
Geopolitical: Trump warned of "severe consequences" if Friday's Alaska summit fails; markets largely ignored geopolitical risks
Equities vs. Forecast
Forecasted: High risk (0.71) with 40% probability of 6,380-6,440 consolidation, 35% chance of 6,250-6,350 correction, small-cap outperformance by 1.5x
Actual: S&P 500 exceeded consolidation range closing at 6,466.58; Russell 2000 dramatically outperformed by 166bps; Dow led with +1.04% gain
Why: The extreme positive gamma positioning at $13.9 billion (96th percentile) created a volatility suppression mechanism stronger than anticipated, while Treasury Secretary Bessent's hint at a potential 50bp September cut amplified bullish sentiment. The feared CTA selling trigger at 6,120 never came close to testing as momentum buyers overwhelmed any profit-taking. Small-caps' 1.98% surge reflected aggressive positioning for lower rates given their higher floating-rate debt exposure.
Fixed Income vs. Forecast
Forecasted: Moderate risk (0.52) with 10-20bp yield volatility, potential curve steepening, yields in 4.28-4.35% or 4.15-4.25% range
Actual: 10-year yield fell to 4.24% (-6bps), perfectly within predicted 4.15-4.25% range; curve maintained normal slope at 51bps
Why: The bond market's measured response reflected a goldilocks scenario where Fed cuts are priced without recession fears. The absence of supply pressure from auctions and stable foreign demand prevented the anticipated volatility. Real rates remained restrictive at 2.02%, suggesting the Fed has room to ease without stoking inflation concerns.
Commodities vs. Forecast
Forecasted: Moderate-High risk (0.63) with oil in $60-70 range, gold testing $3,300 support, natural gas sub-$2.50 possible
Actual: WTI at $62.65 and Brent at $65.63 within predicted range; Gold rose to $3,357.85 exceeding support; Natural gas held at $2.83
Why: The anticipated energy weakness materialized as OPEC+ production increases and EIA inventory builds (+48 bcf for gas) overwhelmed any geopolitical premium. Gold's strength reflected continued central bank buying (244 tonnes Q1) and Fed easing expectations. Natural gas avoided sub-$2.50 as production remained elevated at 107.5 bcfd, balancing oversupply concerns.
FX vs. Forecast
Forecasted: Moderate risk (0.58) with DXY testing 97.00, EUR/USD to 1.17, USD/JPY intervention above 150
Actual: DXY fell to 97.74 successfully testing 97.00 support; EUR/USD surged to 1.1678 exceeding 1.17 target; USD/JPY at 147.35
Why: The dollar's predicted weakness accelerated as rate differential compression became the dominant theme. The 2-year US-German spread narrowing to 92bps from 140bps peak drove euro strength. Japanese intervention threats remained dormant with USD/JPY well below 150, while sterling's 0.52% gain reflected UK rate advantage.
Volatility vs. Forecast
Forecasted: High risk (0.73) with VIX in 15-17 range for consolidation or 18-22 for correction, gamma unwind risk below 6,120
Actual: VIX collapsed to 15.84, landing perfectly in the 15-17 consolidation range; no gamma unwind occurred
Why: The extreme dealer gamma positioning proved more powerful than anticipated in suppressing volatility. The $4.8 billion gamma expiring Friday created strong pinning effects around 6,400. Put/call ratios at 0.63 showed aggressive call buying, while the absence of any catalyst to trigger systematic selling kept implied volatility compressed despite the approaching summit.
Geopolitical vs. Forecast
Forecasted: Critical risk (0.89) with binary summit risk, potential circuit breakers, Ukraine exclusion backlash
Actual: Markets completely ignored geopolitical risks despite Trump's "severe consequences" warning; no flight-to-quality occurred
Why: The overwhelming focus on Fed policy and rate cut certainty (94% September probability) dominated any geopolitical concerns. The 90-day China tariff extension removed immediate trade war fears, while markets appeared to view the summit as political theater rather than a genuine market risk. The absence of energy price spikes despite Russia tensions confirmed market complacency.
Unanticipated Impacts in Unassessed Segments
Healthcare sector surged +1.43% to lead all S&P sectors on Medicare Advantage rate increases and biotech M&A speculation
Albemarle Corp (ALB) saw unusual options activity with 53,737 contracts traded (23x daily average) on lithium pricing optimism
Technology sector surprisingly declined -0.43% despite Nasdaq record, indicating healthy rotation rather than tech-led rally
Consumer Discretionary jumped +1.07% as lower rate expectations boosted housing-related stocks and auto manufacturers
30-year mortgage rates dropped to 6.67%, lowest since April, spurring 23% weekly surge in refinancing applications
Market breadth reached exceptional levels with 79.5% of stocks advancing and 3:1 advance-decline ratio on NYSE