Navigating Market Calm: Upcoming Catalysts and the Role of NDX and XND Index Options

What Me, Worry?

Last weekend, I visited one of Chicago’s countless summer neighborhood street festivals. This one was in the Andersonville area, which retains a Swedish influence dating to Scandinavian settlers after the Great Chicago Fire. The Midsommarfest included all the typical wares, culinary delights and live music. I happened across a vintage reseller who had a selection of Mad Magazines from decades prior. I was immediately transported back to my youth. Ironically, I conjured images of another midwestern Swedish area in Door County, Wisconsin. Mentally, I was in a friend’s family home in Jacksonport, WI, where his older brother had a mountain of Mad Magazines.

Alfred E. Neuman was the publication’s omnipresent cover boy. I saw a bit of myself in the awkward young man with a big smile, ginger hair and freckles. However, Alfred’s tag phrase, “What Me, Worry?” didn’t resonate personally. I believe I’ve always been prone to worry (Irish Catholic guilt?). As a child, I was a rule follower. I played it safe and did what was expected because I was worried about repercussions. That approach served me well.

Very recently, equity (and fixed income) markets seem to have embraced the Alfred E. Neuman mindset. Is this an opportunistic aberration?

Markets & Worry

The market truism is that stocks, and, by extension, equity indexes “climb a wall of worry.” That remains true in the present day. However, as an active market observer and longtime participant, I’m struck by the recent paucity of concern. More specifically, the fact that domestic equity and bond markets barely flinched on news of one nuclear-powered nation bombing another nation thought to be closing in on nuclear capabilities. 

The chart below plots the price action for the Nasdaq-100 Index (NDX®) June futures contract looking back to the fifth of the month. Two observations pop into mind.

• NQ futures have been channeling in a relatively narrow range between 22,000 (green) and 21,500 (red) for most of the month.
• The decline on June 5 related to the “escalation of tensions” between President Trump and Elon Musk was nearly identical to the selloff on “escalation of tensions” between Israel and Iran (where nuclear capabilities are front and center).

Past performance is not indicative of future returns.

Source: Barchart

On the one hand, Tesla is the ninth largest constituent in the NDX®. That exposure currently makes up about 3.7% of the overall index. When a top 10 holding declines by more than 10% in a session, it’s a big deal. TSLA shareholders lost $152.4 billion in value that day. NQ futures quickly declined by ~2.3%.

A week later, one of nine nations with the capacity to drop nuclear weapons bombed a rival nation that’s aspiring to be a nuclear power. NQ futures proceeded to fall by ~2.3% and bounced off at the low end of the recent trading range.

There was a compelling take from @SweepTape on X that positioned modern day conflicts as obfuscated quantitative easing. Their rationale points to global conflict forcing government(s) spending on construction and defense. That’s played out across the map for the better part of a decade.

This leads me to a related point: sentiment data. There’s a natural negative human reaction to headlines around war, tariffs, etcetera. That has been reflected in sour sentiment data for months, but the situation has improved of late. The data below plots the spread between bulls and bears (AAII Sentiment) going back five years. When the spread falls below 0, there are more bears than bulls and vice versa.

The most overtly bullish skew to the data occurred in spring of 2021 as equity markets ripped higher, led in part by “meme stocks.” It was not the most “rational” of rallies. By contrast, sentiment was decidedly negative in late September 2022 during the most significant bear market since Covid. There were similarly negative sentiments reflected in early April of this year following the original tariff plan.

Past performance is not indicative of future returns.

Source: YCharts

The data will be updated at the end of the week, but if NDX® price action is any indication, sentiment seems unmoved by the Middle East headlines.

Future Catalysts

Looking a bit further out in time, there are a few potentially concerning dates on the calendar approaching. Let’s evaluate them quickly:

• June 20 = Quarterly (Quad) Expiration:
  • Standard and Quarterly options expiries are not inherently risk provoking events. However, there’s been a tendency for broad market volatility to increase following the rolling or expiration of dealer gamma. When dealers are long gamma, it becomes more difficult for the market to move in wide ranges. Dealers are incentivized to buy weakness and sell into strength which can suppress macro vol. Dealer gamma exposure will likely be significantly smaller after the third Friday in June and/or July 1.
• Q2/Rebalancing:
  • The second quarter will wrap up at the end of the month. Many institutions hedge out risk using month end options to match with when they mark their books. Furthermore, there will be indexes rebalanced or reconstituted, which typically increase equity volumes and may drive some option positioning. Sometimes the end of one “chapter” (Q2 = Tariff Chapter) can give rise to a new dynamic. Time will tell.
• Trade Policy/Politics:
  • The budget and tax bill are churning in the Senate. There has been some vocal opposition from constituents concerned about driving up the national debt. Apparently, the GOP is targeting some resolution around July 4 (Independence Day).
  • July 8 will mark the end of the 90-day “pause” window on retaliatory tariffs. It’s possible that the “pauses” will be extended in advance of their “expiration.” If not, what implications will there be in capital markets (both equity and fixed income)?
• Hard Data:
  • In early July, markets will also contend with the next wave of meaningful macro data. That includes the monthly unemployment report (7/3/2025), change in Consumer Price Index (CPI) (7/15/2025), ISM data (7/1 and 7/3/2025). This hard data will likely influence the next few FOMC meetings. The market currently expects another cut at the September meeting and the prospect of one more before the end of 2025. The updated dot plot following the June meeting shows voting members skewing more hawkish in 2026.

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Originally Posted on June 23, 2025 – Navigating Market Calm: Upcoming Catalysts and the Role of NDX® and XND® Index Options