US Daily Financial Risk AAR

August 15th, 2025

Day In Review

The 36.2% composite risk score proved prescient as markets delivered precisely the base case scenario anticipated in morning predictions. The S&P 500 closed at 6,449.80, firmly within the forecasted 6,400-6,500 range-bound zone, declining a modest 0.29% despite multiple cross-currents including the Trump-Putin summit, mixed economic data, and dramatic single-stock moves. Volatility remained contained with the VIX closing at 15.09, comfortably within the predicted 13-16 base case range, while Treasury yields and the dollar tracked closely to expectations. The 71st percentile risk ranking accurately captured the day's controlled turbulence without triggering the feared 35% probability risk case scenario of testing 6,200-6,300.

Overview of Observed Events

• Equities: S&P 500 closed at 6,449.80 (-0.29%), Nasdaq Composite at 21,622.98 (-0.40%), Russell 2000 at 2,286.52 (-0.55%), while the Dow Jones bucked the trend at 44,946.12 (+0.08%) supported by UnitedHealth's 12% surge.

• Fixed Income: 10-year Treasury yield rose 4 basis points to 4.33%, 30-year closed at 4.92%, 2-year at 3.75%, maintaining a positively sloped curve with 58 basis point 2s10s spread. Investment-grade corporate spreads hit 27-year lows at 73 basis points.

• Commodities: WTI crude fell 1.28% to $63.14/barrel on supply concerns, Brent showed similar weakness, Gold held steady at $3,335.60 (unchanged) Silver dipped marginally to $38.00 (-0.03%).

• FX: DXY weakened 0.49% to 97.7752, EUR/USD strengthened 0.52% to 1.1711, USD/JPY traded around 145.00, dollar broadly lower on Fed cut expectations.

• Volatility: VIX rose 1.75% to 15.09,put/call ratio at 0.75 indicated call-heavy positioning, monthly options expiration elevated volumes to 10.9 million contracts.

• Geopolitical: Trump-Putin Alaska summit produced no concrete Ukraine ceasefire agreement despite 3 hours of talks, China tariff truce extended 90 days through November 10, Applied Materials warned of China demand weakness.

Equities vs. Forecast

• Forecasted: Base case 45% probability of S&P range-bound 6,400-6,500 with composite risk score 36.2%, risk case 35% probability of testing 6,200-6,300, expected sector rotation from technology to defensive names.

• Actual: S&P 500 closed at 6,449.80, precisely within the base case range declining just 0.29%. Technology weakness materialized with Nasdaq down 0.40% and semiconductors plunging on Applied Materials' 14% collapse, while healthcare surged on UnitedHealth's Berkshire-driven 12% gain.

• Why: The forecast accurately anticipated range-bound trading as cross-currents neutralized each other - summit uncertainty offset by rate cut hopes, weak consumer sentiment balanced by solid retail sales, and dramatic single-stock moves (AMAT down 14%, UNH up 12%) creating internal market rotation rather than directional moves.

Fixed Income vs. Forecast

• Forecasted: 10-year yield expected 4.20-4.40% range, curve steepening anticipated on Fed cut expectations, corporate spreads to remain tight on FOMO dynamics.

• Actual: 10-year yield closed at 4.33% (+4 bps), perfectly centered in forecast range. Investment-grade spreads compressed to historic 73 basis points (27-year low), 2s10s spread at 58 basis points showed modest steepening.

• Why: Treasury yields tracked predictions as mixed economic data (solid retail sales but weak sentiment) reinforced September rate cut expectations without triggering aggressive rally. Corporate credit FOMO intensified beyond expectations, driving spreads to multi-decade lows.

Commodities vs. Forecast

• Forecasted: Oil expected to trade $62-65 range on supply concerns and summit uncertainty, gold anticipated stable around $3,300-3,400 on inflation hedging.

• Actual: WTI crude fell 1.28% to $63.14, within expected range. Gold held flat at $3,335.60, silver down marginally 0.03% to $38.00.

• Why: Energy weakness materialized on OPEC+ production increase concerns and lack of summit breakthrough. Precious metals stability reflected offsetting forces of dollar weakness (supportive) and reduced geopolitical premium post-summit.

FX vs. Forecast

• Forecasted: DXY expected 97-99 range with bias toward lower end on Fed cut expectations, EUR/USD strength anticipated above 1.16.

• Actual: DXY closed at 97.7752 (-0.49%), EUR/USD strengthened to 1.1711 (+0.52%), broad dollar weakness across majors.

• Why: Dollar weakness aligned with forecasts as 87% probability of September Fed cut weighed on greenback. EUR strength validated on policy divergence expectations with ECB maintaining easier stance.

Volatility vs. Forecast

• Forecasted: VIX base case 13-16 range, elevated options activity expected on monthly expiration, limited spike risk absent summit surprise.

• Actual: VIX closed at 15.09 (+1.75%), options volume hit 10.9 million contracts, put/call ratio 0.75 showed complacency, index options more hedged at 1.05 ratio.

• Why: Volatility remained perfectly contained within forecast band despite summit drama and earnings shocks. Monthly expiration flows absorbed smoothly without disruption, validating the 36.2% composite risk score's moderate threat assessment.

Geopolitical vs. Forecast

• Forecasted: Summit expected to produce framework agreement without immediate ceasefire, market reaction muted unless major surprise, China tensions to persist.

• Actual: No concrete agreement reached despite "great progress" claims, markets shrugged off non-event, China extended tariff truce 90 days but Applied Materials cited ongoing China weakness.

• Why: Geopolitical developments tracked base case scenario precisely - summit provided theatre without substance, allowing markets to focus on fundamentals. China tariff extension removed near-term tail risk while structural tensions persisted in semiconductor warnings.

Unanticipated Impacts in Unassessed Segments

• Berkshire's UnitedHealth Bombshell: Warren Buffett's $1.6 billion stake disclosure triggered 12% surge in worst-performing Dow stock, single-handedly preventing index decline and creating healthcare sector rotation not captured in morning risk assessment.

• Investment-Grade Credit Euphoria: Corporate bond spreads compression to 27-year lows at 73 basis points exceeded all forecasts, creating dangerous FOMO dynamics as investors chased yield before anticipated Fed cuts.

• Consumer Sentiment Collapse: University of Michigan index plunge to 58.6 versus 62.0 expected marked first decline since April, with inflation expectations jumping to 3.1% suggesting tariff fears embedding in psychology.

• Empire State Manufacturing Surge: August reading of 11.9 versus -1.0 expected provided unexpected regional strength offsetting national industrial production weakness, complicating Fed's assessment.

• Japan GDP Surprise: Q2 growth of 1.0% annualized versus 0.4% expected strengthened yen and provided unexpected support for risk assets, offsetting China's disappointing retail sales miss at 3.7% versus 4.6% expected.