U.S. equity markets were under pressure all day with the losses accelerating into the close of trading. That's never a good sign — especially after the strength of the recent post-election, vaccine-induced rally for equity markets over the past two weeks.

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News late in the day that New York City schools will be shutting down tomorrow to contain the continued spread of the virus didn't help. Not because of the disruption it will cause, but because it's the nation's largest public school system, and if it has to close then we should expect more cities to do the same in the coming days. 

The sell-off was also curious given the positive vaccine and testing news out this morning from Pfizer and Lucira Health (see below). It may have been a case of investors buying the rumors of vaccine progress last week, and selling on the news this week.

Share price chart

Either way, U.S. equity markets, while higher than a month ago, are kind of range-bound as investors try to put money to work in what they think will be winning sectors. It's tough to pin those down given the spread of the virus, which is probably why the big indexes keep hitting resistance near or at record highs.

Volatility chart
Chart courtesy Schwab Research.

Where Did the Volatility Go?

Sometimes things don't play out the way we think they will. 2020 has been a good lesson in that. We went into October with expectations for heavy volatility through the rest of the year. There were good reasons for those expectations. The virus was spreading throughout Europe and parts of the U.S., the contentious election was approaching, and stocks had rallied through the summer and many had approached nosebleed valuations. 

Beyond that, implied volatility, expectations for future volatility as measured by the buying and selling of options contracts, were screaming like a toddler who just dropped their ice cream. Equity markets sold off into the final two weeks of October, but then rallied 10% since Election Day. 

Maybe it was the fact that the event risk of the election had passed even though the outcome wasn't certain, but the screaming has stopped and volatility is but a whisper of what it was just a month ago. It may come back, but the fact that it has settled as investors have come back to equities in a broad-based way is a good sign for stock market stabilization.

CC1! Futures Chart
Chart courtesy TradingView.

These Goes Cocoa

There have been a few signs of inflation this year, especially in U.S. home prices, flour, and now cocoa. The commodity is at a seven-week high, but it has little to do with how much baking we are doing while we are stuck at home. 

Ivory Coast and Ghana, two of the world's biggest cocoa bean producers, have been hiking prices for the commodity just as consumers make their baking plans for the upcoming holidays. Their motive, however, is not to gouge consumers just as demand is set to spike. 

The price rises are largely due to the two governments setting new elevated price floors on the commodity so that they can combat poverty among farmers in their countries. So, if your grocery bill goes up, especially in the dessert aisle, now you know why.