A closely watched gauge of bond-market volatility is signaling all-clear for stocks

By Joseph Adinolfi

The MOVE Index retreated below 60.1 late last week. That is a promising sign for stocks, according to SentimenTrader.

November wasn't exactly a great month for the U.S. stock market, although the S&P 500 did manage to eke out a small gain. So far, December is shaping up to be only modestly better.

As a new year approaches, anybody looking for a reason to stay invested in stocks should take a look at a bullish signal emanating from the bond market, according to an analysis from SentimenTrader.

In commentary shared with MarketWatch on Monday, the SentimenTrader team showed that the ICE BofAML Move Index falling below 60.1 late last week could portend more gains for stocks up to one year out. In the past, similarly low readings - which suggest investors aren't all that worried about a bond-market selloff - have preceded stretches of strong equity returns.

In certain situations, bonds can offer a helpful hint about where stocks might be heading next. Oftentimes, equity investors take their cues from the fixed-income markets. When chaos breaks out in bonds, stocks rarely escape unscathed.

Sometimes, the opposite can also hold true: When the bond market is calm, it can signal smooth sailing ahead for stocks.

The MOVE Index was designed to do for bonds what the Cboe Volatility Index VIX does for stocks. Like the VIX, the MOVE measures options-market activity in an effort to gauge how concerned bond traders might be about a selloff in the coming month or so.

                                                                                 Indicator performance 
   S&P 500                 One week later (%)  Two weeks later (%)  One month later (%)  Two months later (%)  Three months later (%)  Six months later (%)  One year later (%) 
   Average returns                         0.3%                 0.6%                 1.4%                  2.6%                    3.6%                  7.4%                   11.9% 
   Median returns                          0.4%                 0.8%                 1.8%                  3.3%                    4.5%                  7.4%                   12.3% 
   Win rate                                 62%                  70%                  75%                   82%                     81%                   85%                     80% 
   Source: SentimenTrader 

As the table above shows, the MOVE, although it's rooted in the bond market, has a pretty convincing win rate for stock-market performance up to a year out. After the MOVE Index falls below 60.1, the S&P 500 has traded higher three months later 81% of the time. Six months later, that rises to 85%, before falling back to 80% after 12 months.

U.S. stocks traded higher on Monday, leaving the S&P 500 SPX within striking distance of a fresh high, according to FactSet data. The Dow Jones Industrial Average DJIA and Nasdaq Composite COMP were also climbing. Treasury yields, meanwhile, were higher, with the 10-year yield BX:TMUBMUSD10Y up two basis points at 4.170%. Bond yields move inversely with bond prices.

-Joseph Adinolfi

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12-22-25 1357ET