US Daily Financial Risk AAR
August 11th, 2025
Day in Review
Monday's trading session delivered a subdued performance that defied weekend optimism, as pre-market futures gains evaporated into a lackluster grind ahead of Tuesday's critical CPI data. While the Dow managed modest gains of 0.45% to close at 44,175, both the S&P 500 and Nasdaq retreated with losses of 0.25% and 0.30% respectively, reflecting investor caution before key inflation readings that could reshape Fed policy expectations.
Overview of Observed Events
Equities: S&P 500 (^GSPC) closed -0.25% at 6,373.45, Nasdaq Composite (^IXIC) -0.30% at 21,385.40, Dow Jones +0.45% at 44,175.09
Fixed Income: 10-year Treasury yield stable around 4.22%, 30-year yield unchanged, 2-year yield holding at 4.00%
Commodities: WTI crude steady, Gold consolidating near $3,350, Cocoa futures spiked 10% to $8,823 hitting July highs
FX: DXY remained range-bound, EUR/USD stable above 1.15, USD/JPY holding below intervention levels
Volatility: VIX declined to 15.92 (-8.62%), dropping back toward complacency levels despite looming data risks
Geopolitical: Markets largely ignored ongoing diplomatic tensions as focus shifted to domestic inflation data
Equities vs. Forecast
Forecasted: High risk with potential for 2-4% intraday swings driven by negative gamma positioning and earnings volatility
Actual: Markets delivered muted performance with S&P 500 declining modestly while Dow posted gains; intraday volatility remained constrained
Why: The anticipated volatility failed to materialize as traders maintained defensive positioning ahead of Tuesday's CPI release. Institutional flows were minimal with many participants preferring to wait for inflation clarity before making significant moves. The divergence between Dow performance (+0.45%) and tech-heavy Nasdaq (-0.30%) reflected sector rotation rather than broad-based selling pressure. Additionally, Paramount's UFC acquisition boosted media stocks while Hershey's decline on cocoa price spikes created isolated sector impacts rather than systematic stress.
Fixed Income vs. Forecast
Forecasted: Moderate-High risk with 10-15bp yield volatility and potential curve steepening pressure
Actual: Yields remained remarkably stable with minimal movement across the curve
Why: Bond markets entered a holding pattern ahead of Tuesday's CPI data, with neither buyers nor sellers showing conviction. The lack of significant economic data or Fed speaker commentary created a vacuum that prevented the forecasted volatility from emerging. Foreign demand appeared stable, contrary to concerns about auction digestion, while credit spreads remained contained, suggesting risk-off positioning was limited.
Commodities vs. Forecast
Forecasted: Very High risk with potential oil spike to $75-80 and gold testing $3,400 on geopolitical tensions
Actual: Energy markets remained stable while gold consolidated; cocoa emerged as the day's standout commodity
Why: The absence of new geopolitical catalysts, particularly regarding Russia sanctions or trade negotiations, removed the primary driver for energy price spikes. Gold's failure to advance despite ongoing uncertainties reflected profit-taking near recent highs and stronger-than-expected dollar resilience. The cocoa futures surge of 10% to $8,823 represented supply-side fundamentals rather than geopolitical premium, directly impacting food companies like Hershey.
FX vs. Forecast
Forecasted: High risk with DXY testing 100 and potential yen intervention above 150
Actual: Currency markets remained range-bound with minimal volatility across major pairs
Why: The anticipated dollar strength failed to materialize as markets awaited CPI data before making directional bets. EUR/USD held above 1.15 support levels, while USD/JPY remained well below intervention thresholds. The lack of central bank commentary or surprise policy shifts kept volatility subdued, contrary to expectations of heightened FX stress.
Volatility vs. Forecast
Forecasted: High risk with VIX spike to 22-25 on headline volatility and negative gamma positioning
Actual: VIX declined sharply to 15.92, falling 8.62% and approaching complacency levels
Why: The absence of immediate catalysts allowed implied volatility to compress as options positions expired and new hedges were delayed until after CPI data. The negative gamma positioning that was expected to create acceleration risk instead contributed to volatility suppression as dealers' hedging activities remained minimal. This created a dangerous setup where markets appear calm ahead of potentially market-moving data.
Geopolitical vs. Forecast
Forecasted: Critical risk with potential market circuit breakers from Russia deadline impacts
Actual: Markets largely ignored geopolitical concerns as domestic data took precedence
Why: The focus shifted entirely to Tuesday's CPI release, overshadowing ongoing diplomatic tensions. The lack of immediate deadline pressure or new escalations allowed markets to treat geopolitical risks as secondary to monetary policy implications from inflation data.
Unanticipated Impacts in Unassessed Segments
Paramount (PARA) surged 5% on $7.7 billion UFC acquisition deal spanning seven years starting 2026, boosting media sector sentiment
Hershey (HSY) led S&P 500 declines with -5% drop as cocoa futures spiked 10% to highest levels since July 1
C3.ai downgraded to underperform by D.A. Davidson after disappointing Q1 revenue guidance of $70.2-70.4M vs $104M expected
UBS raised S&P 500 year-end target to 6,100 from 5,500, implying 4.5% decline from current levels, citing emerging headwinds
Healthcare sector continued underperformance as policy uncertainty weighed on insurance companies and broader medical stocks
Small-cap Russell 2000 showed relative weakness, consistent with historical patterns during pre-data uncertainty periods