Recent analysis suggests that the S&P 500 is currently navigating a period of exceptionally elevated dispersion – a scenario that historically serves as a precursor to a mechanical market reversal.
While U.S. stocks closed higher on Tuesday, as implied volatility fell sharply on the VIX 1-day (VIX1D), which measures the expected volatility of the S&P 500 index for the current trading day, that condition is unlikely to last as Nvidia (Nasdaq: NVDA) is expected to report its quarterly results after market close today.
S&P 500 Expected to Undergo Market Reversal Following Nvidia Earnings Call Release
The more likely scenario looks to be that the VIX1D, which fell to 12.7 points, will head significantly higher and probably edge closer to 20 before the market closes. When Nvidia announced its Q2 2025 results towards the end of August 2025, the metric rose by 7.3 points to close at 15, and in November, VIX1D rose by 6 points to close much higher at 26.9.
According to an investing.com commentary by market analyst Michael Kramer, a similar 6-to-7 point move higher in the VIX1D today would mean it closes around the 19 to 20 mark. Interestingly, the S&P 500 finished higher on both occasions, rising by about 25 and 40 basis points, respectively. But whether the market finishes up or down today will depend on how quickly the implied volatility rises and how high it can get.
However, what seems to be clear is that there will be no volatility to crush today. So if the market is going to rise, it will need to do so on its own terms, leveraging fundamentals, and not with any assistance from the volatility crowd. But on Thursday, the odds of a volatility crush are higher regardless of what Nvidia’s numbers will be.
Kramer believes that once the American semiconductor giant releases its earnings report, the market will start to see the spread between S&P 500 constituent implied volatility and index-level volatility compress. He noted that currently the spread is extremely wide and has been so for quite some time.
Spread Between Implied and Index-Level Volatility for S&P 500 to be Higher on Thursday
The last time the spread was this wide was in January 2025 and October 2024, and before that, in July 2024 and July 2023. Those periods were followed by sharp market sell-offs, and with the current spread standing at around 22, Kramer suggests a high chance of the same scenario happening this week.
Despite the S&P 500 moving higher yesterday, IG (Investment Grade) and HY (High Yield) credit spreads continued to rise. Meanwhile, CDS (Credit Default Swap) spreads for Oracle and other AI-related stocks continue to widen. The analyst believes that IG spreads should be wider than their current position, especially given that Oracle (ORCL) is an investment-grade name in the CDX IG index – a benchmark tracking the 125 most liquid IG CDS contracts among publicly traded North American companies.
The S&P 500 closed Tuesday’s session at 6,890 points – up 52.32 points on the day.
