The S&P 500 index may be nearing an all-time high, but the underlying stocks are experiencing a different story altogether. According to Charlie McElligott, only two sectors – TMT and Energy – have seen gains over the past 30 days, while the rest of the index has been hit hard. In fact, 85% of S&P 500 names are currently below their all-time highs, with 59% falling by more than 20%, 41% by more than 30%, 26% by more than 40%, and 17% by more than 50%.

So, why is the index not reflecting this rotational carnage? The answer lies in the massive volatility supply that continues to prop up the index. As McElligott notes, intraday in 0DTE/1DTE, there is a significant amount of gamma activity, which can be compared to QIS VRP strategies. This is insulating the index from large moves, allowing it to maintain its composure despite the carnage beneath. Nomura’s 0DTE customer gamma range is currently at +$14 billion, which is the 100th percentile.

This phenomenon is not new, as we have seen it before in the past. However, it is worth noting that the current situation is unique in the sense that the volatility supply is coming from a combination of sources, including index “vol sellers” and “stuffing Dealers on Gamma.” This is causing a situation where the index is not reflecting the true rotational carnage that is happening beneath the surface.