Vulcan Stock Research

Weekly Market-Correction Probability Update

Week ending Sunday, July 27 2025

Catch up on last week’s analysis here.

1. Where We Stand Now

• S&P 500: notched its 5th straight record close on Friday at 6,388.64; the index is essentially sitting at its intraday peak, leaving no meaningful drawdown cushion.
• Volatility:
  • VIX spot slipped to ~15.4, its lowest reading since February.
  • Front-month VIX futures hover near 18 with a mild contango into the second month, underscoring a calm near-term outlook but higher medium-term risk premium.
• Realized 20-day volatility: has cooled to roughly 7 % – 8 % annualized, reinforcing the “steady grind-up” tape.

2. Updated ≥10 % Correction Odds

Horizon	Jul 20 Estimate	Jul 27 Estimate	Δ	Alert Trigger?
30 days	5 – 6 %	≈ 5 %	▼ ~0.5 ppt	No
60 days	12 – 13 %	≈ 12 %	▼ ~1 ppt	No

Takeaway: A quieter VIX and still-rising index nudged implied probabilities slightly lower, but not enough to trigger our 2-ppt change alert thresholds. Short-term downside risk remains historically modest, while medium-term risk continues to reflect seasonal headwinds and frothy sentiment.

3. What’s Driving (or Restraining) Risk

1. Momentum & Liquidity: Five consecutive record closes, robust earnings beats, and relentless retail flows keep upside momentum intact.
2. Euphoria Flags: Margin-debt growth and speculative positioning are flashing 1999/2007-style warnings—raising latent correction risk even as implied vol lulls.
3. Macro Catalysts Ahead:
   • Fed meeting (Jul 30): any hint of delayed cuts could jar rate-sensitive sectors.
   • August–September seasonality: the weakest two-month span on the calendar historically.
   • Trade rhetoric: U.S.–China/EU tariff noise remains a wild card.

4. Portfolio Implications

• Hedging remains cheap: With VIX near 15, three-to-six-week put spreads still price attractively for those wanting tail protection into late August.
• Trim euphoria winners opportunistically: High-beta names that have outrun fundamentals can be partial funding sources for hedges.
• Stay data-dependent: A volatility spike or unexpected macro print could swing our 30-/60-day probabilities by several points in a single session.

Next scheduled update: Sunday, August 3 — we’ll revisit the numbers after the Fed decision and the first wave of August data.

References

1. Associated Press, “How major US stock indexes fared Friday, 7/25/2025.” (AP News)
2. FRED, “CBOE Volatility Index (VIXCLS) daily close, July 24 2025.” (FRED)
3. Barchart, “S&P 500 VIX futures quotes, July 27 2025 snapshot.” (Barchart.com)