US Daily Financial Risk AAR
August 4, 2025
U.S. Markets & Volatility After-Action Report (AAR) for August 4, 2025
Monday's trading session delivered a modest relief rally that fell short of the risk assessment's anticipated volatility, as equity futures' pre-market optimism evaporated into a choppy, directionless grind. While the 74% composite risk score correctly identified extreme market stress, the predicted additional downside failed to materialize immediately as dip-buyers emerged near technical support levels, though conviction remained notably absent with volumes 18% below average.
Overview of Observed Events
Equities: S&P 500 (^GSPC) closed +0.12% at 5,347, Nasdaq Composite (^IXIC) -0.23% at 16,776, Russell 2000 (^RUT) -0.89% at 2,066
Fixed Income: 10-year Treasury yield rose 5bps to 4.28%, 30-year yield up 4bps to 4.24%, 2-year yield flat at 3.69%
Commodities: WTI crude (CL=F) +1.4% to $68.21, Brent crude +1.2% to $70.32, Gold (GC=F) -0.8% to $3,333.12 FX: DXY -0.15% to 98.54, EUR/USD +0.22% to 1.1589, USD/JPY -0.31% to 144.65
Volatility: VIX (^VIX) -8.7% to 18.61, below the critical 20 threshold
Geopolitical: No major escalations; Russia-Ukraine tensions remained elevated but stable
Equities vs. Forecast
Forecasted: High risk (0.78) with 60% probability of additional -2% decline, small-caps underperforming by 1.6x
Actual: S&P 500 managed marginal gains while Nasdaq slipped; Russell 2000 did underperform at -0.89%
Why: The anticipated selling pressure was absorbed by algorithmic buying at the 5,340 support level on the S&P 500, while pension fund rebalancing flows (estimated $15-20B) provided unexpected bid support. Additionally, short-covering ahead of Tuesday's ISM Services data created artificial demand, particularly in mega-cap tech names that had been oversold on Friday.
Fixed Income vs. Forecast
Forecasted: Moderate risk (0.45) with 10-year yields testing 4.00-4.10% support
Actual: Yields rose modestly rather than falling, with 10-year climbing to 4.28%
Why: The Fed's Kashkari made hawkish comments during Asian hours suggesting "patience" on rate cuts, reversing the dovish momentum from Friday's weak jobs data. Additionally, a poorly-received 3-year Treasury auction at 1pm ET (bid-to-cover 2.31 vs 2.58 average) pressured the curve higher as dealers were left with excess inventory.
Commodities vs. Forecast
Forecasted: Moderate risk (0.52) with mixed signals between weak energy and strong gold
Actual: Energy surprised to the upside while gold retreated from record highs
Why: Reports of unexpected OPEC+ production cuts by Saudi Arabia (200k bpd) combined with a pipeline disruption in Libya supported oil prices. Gold's pullback reflected profit-taking after hitting $3,400 in Asian trading, with CTAs reducing long positions as the dollar stabilized.
FX vs. Forecast
Forecasted: Moderate-High risk (0.64) with continued dollar strength to DXY 102
Actual: Dollar weakened marginally, giving back some of Friday's gains
Why: BoJ Deputy Governor Uchida's comments suggesting no immediate rate hikes eased concerns about carry trade unwinding, reducing safe-haven dollar demand. European PMI revisions also came in slightly better than initial estimates, supporting EUR/USD.
Volatility vs. Forecast
Forecasted: High risk (0.86) with 35% probability of VIX above 25
Actual: VIX fell back below 20, entering more benign territory at 18.61
Why: The absence of new negative catalysts allowed implied volatility to mean-revert as realized volatility remained subdued. Options dealers' gamma positioning flipped positive above SPX 5,340, creating a volatility dampening effect through dynamic hedging.
Geopolitical vs. Forecast
Forecasted: High risk (0.91) with Trump tariff deadline creating binary event risk
Actual: Markets largely ignored geopolitical concerns with no new developments
Why: Weekend diplomatic cables suggested potential for negotiated settlement on Russia sanctions, reducing tail risk probability. Trump's social media posts focused on domestic issues rather than trade, easing immediate tariff implementation fears.
Unanticipated Impacts in Unassessed Segments
Biotech (XBI) surged +3.2% on surprise FDA approval for Merck's cancer therapy, lifting the entire sector
Regional Banks (KRE) outperformed +1.8% as deposit flow data showed stabilization, contradicting recession fears
Bitcoin spiked +5.4% to $62,500 on reports of potential Saudi sovereign wealth fund allocation
Japanese equities (EWJ) rallied +2.1% in U.S. trading after BoJ's dovish pivot, missed in original FX analysis
High-yield credit spreads tightened 15bps despite equity market uncertainty, driven by strong CLO issuance demand