Market Tone Is Shifting, But Remember Seasonality Trends

Yesterday’s 1.4% drop in the Nasdaq 100 (NDX) and 0.6% decline in the S&P 500 (SPX) sparked conversations about whether this could be a market “top.” Popular momentum stocks like Palantir (PLTR) and Oklo (OKLO) have faced notable selling pressure, with both down more than 15% from their all-time highs. But should traders be concerned—or is this just a seasonal trend?

Historically, August and September tend to be volatile months for the S&P 500. A 15-year VIX seasonality chart shows that, typically, volatility trends higher during this period. However, so far this month, the VIX has diverged from that pattern, trending lower instead. This suggests that part of yesterday’s selling pressure may simply reflect normal seasonality.

Another underappreciated development over the past three sessions has been the divergence between the VVIX (volatility of the VIX) and the VIX (volatility of the S&P 500) itself. While the VIX continued to drift lower, the VVIX started moving higher, a signal that usually resolves within a session or two. Historically, the VIX tends to follow the VVIX which is exactly what we saw play out yesterday.

At the same time, Treasury bond volatility, measured by the MOVE Index (MOVE:GIF), has been in a steady downtrend since the April tariff pivot. Given recent economic data and key events on the horizon, such as Jackson Hole and the September Fed meeting, Monday’s uptick in bond volatility was not surprising. Equity markets tend to correlate closely with bond volatility, so this move higher is worth noting.

From a technical perspective, the S&P 500 still has important support levels before a broader trend reversal becomes a concern. As of Wednesday morning, the 20-day simple moving average, which is currently around 6,379, represents the first significant test for bears. This moving average has held as support since the April lows. Beyond that, the 6,200 zone is critical; a breakdown there would shift focus toward a potential lower-lows scenario in price action.

Market pullbacks often stir emotions, but investors can also consider price action, correlations, and data in addition to sentiment. Despite recent choppiness and sector rotation beneath the surface, the S&P 500 continues to make higher highs and higher lows. For now, volatility and sideways action remain consistent with seasonal patterns rather than signaling a decisive shift in market trend.