US Stocks Rise as VIX Drops, CAC 40 Under Pressure

Many US stocks continued their slow burn higher on Tuesday, 26 August, while the VIX index showed volatility continued to decline. Investors appear to be awaiting second-quarter earnings from AI chip behemoth Nvidia (NVDA) before making their next move.

France’s CAC 40 index was a notable global underperformer among world stock indices on Tuesday as markets reacted to the rising possibility of another no-confidence vote in the French government. 

TL;DR

• US stocks ended little changed on Tuesday, with attention fixed on Nvidia’s upcoming earnings and hopes of Fed rate cuts.

• The VIX fell to its lowest level of the year on Friday, 22 August, with hedge funds holding their biggest short positions in volatility futures since 2022.

• France’s CAC 40 slumped 1.5% on 27 August, extending losses as Prime Minister Bayrou tied his €44B austerity plan to a confidence vote, as French bank stocks led the declines.

US Indices Gain Before Nvidia Earnings

US stocks ended Tuesday’s session little changed, with investors treading water ahead of Nvidia’s earnings and brushing off President Donald Trump’s surprise decision to remove Federal Reserve Governor Lisa Cook from the central bank’s board.

Wall Street is pinning high expectations on Nvidia, the largest weight in the S&P 500 and widely seen as both a bellwether for the broader market and a proxy for progress in artificial intelligence. Its results could set the tone for the rest of the year’s rally, especially as the “Magnificent Seven” seeks to rebound from last week’s pullback.

More broadly, the S&P 500 remains on track to finish August higher, underpinned by growing confidence that the Federal Reserve will soon cut interest rates after Chair Jerome Powell signalled as much in his Jackson Hole speech last Friday.

VIX Index Falls to Yearly Lows

The rising confidence in the future outlook among investors can be seen in the lack of volatility in markets. That’s because volatility usually falls after an extended period of gains in the stock market. The VIX index, which tracks volatility in the S&P 500 and is sometimes called Wall Street’s ‘fear gauge’ is back at its lows of the year. The daily drop on Tuesday reflects the index’s inverse link to the stock market gains. According to data from the CFTC, hedge funds have placed the largest short position in VIX futures since 2022. This trade is essentially speculating that markets will remain calm, keeping volatility low.

CAC 40 Hits Political Turbulence

The CAC 40 tumbled 1.5% to 7,728 on Tuesday, adding to Monday’s 1.6% slide as investors priced in fresh French political risk. Opposition parties are refusing to support Prime Minister François Bayrou's proposed confidence vote tied to his €44 billion austerity plan.

France may have to turn to the IMF for support in dealing with rising borrowing costs and record national debt, according to its finance minister, Eric Lombard.

A defeat could push President Macron to install a caretaker government or call snap elections, echoing the budget clash that toppled his previous prime minister.

Financial stocks bore the brunt of the selloff, with BNP Paribas (BNP.PA) (-4.8%), Crédit Agricole (ACA.PA) (-5.7%) and Société Générale (GLE.PA) (-7.5%) among the steepest losers on the day. (Source: TradingView)

Conclusion

US equities held steady as investors waited for Nvidia’s much-anticipated earnings and took comfort from signs the Fed may soon cut rates. Volatility fell to year-to-date lows, and hedge funds doubled down on shorting the VIX. 

In contrast, French markets were rattled by political turmoil, with the CAC 40 tumbling for a second day as uncertainty over fiscal policy and the prospect of a no-confidence vote weighed heavily on investor confidence.

*Past performance does not indicate future results. The above are only projections and should not be taken as investment advice.