Single-stock implied volatility continues to trade at a historically wide premium to index volatility, reflecting structurally lower implied correlation and persistent demand for idiosyncratic protection. Investors appear less concerned about macro shocks and more focused on widening dispersion between winners and losers in an increasingly concentrated equity market grappling with the implications of AI.
The Chicago Business Barometer for February showed strong improvements across production, employment, new orders and deliveries, see chart below. Perhaps we are underestimating the positive effects of the One Big Beautiful Bill, which took effect on January 1. The CBO estimates that it will boost GDP growth by 0.9% in 2026, and the chart below suggests that nonfarm payrolls in February could be significantly stronger than the 58,000 currently expected by consensus.
With low immigration and strong tailwinds to growth from AI spending, the industrial renaissance and the One Big Beautifull Bill, it is not a surprise that wage growth is rising for job switchers, see chart below.
The Strait of Hormuz is a key chokepoint for global oil trade, making any disruption an immediate risk to energy prices and macro outcomes. Our chart book, available here, examines energy demand and supply, as well as the significance of the Strait of Hormuz.
Foreign demand for US assets remains very strong, see chart below.
The average number of years a company remains in the S&P 500 index keeps declining.
Several factors are driving the faster churn in the index:
1. Creative destruction operates more rapidly, shortening the typical time a company remains large and competitive enough to stay in the S&P 500.
2. Technological innovation (IT, internet, AI, cloud, mobile) creates new business models that scale quickly and displace incumbents before they can adapt.
3. M&A and private equity activity more regularly remove large firms from public markets via buyouts or mergers.
The bottom line is that companies in the S&P 500 stay successful for shorter and shorter periods.
