Liquidity Set to Improve in January as Equity Volatility Begins to Reprice

Key Level / Condition

The S&P 500 is trading near 6,877, having slipped below the 6,890 support area. The next important reference point is the 10-day exponential moving average near 6,880, which the index is currently testing. If this level continues to hold, the market would retain the ability to rebound toward the 6,920–6,950 range. Failure to hold would raise the probability of further consolidation, particularly as volatility begins to reprice in early January.

Volatility / Flow Signal

Short-dated implied volatility is starting to firm. The 9-day VIX has moved to roughly 11.5, spot volatility is edging higher, and rate volatility—as reflected in the MOVE index—has already jumped. At the same time, equity financing costs across the curve have declined sharply, suggesting easing demand for leverage. Historically, this combination has tended to coincide with periods when equity momentum begins to slow.

Cross-Asset Signal

Overnight funding pressures are easing as year-end repo stress passes and Treasury bill issuance remains in net paydown mode. However, this dynamic is likely to change by mid-January as issuance ramps back up. Large swings in gold and silver prices reinforce the view that markets are transitioning rather than stabilizing.

Daily Observation

Markets are ending the year in a consolidation phase, with equities holding near support levels but struggling to generate sustained upside. Liquidity conditions are improving as year-end funding pressures ease intrday, yet implied volatility is beginning to rise as a heavier economic calendar approaches. Rate volatility has already moved higher, while equity volatility