|Day's Range||21.01 - 21.36|
(Bloomberg) -- Small-cap shares are a good hedge for potential downturns, volatility strategists say. Credit Suisse Group AG adds that investors who aren’t “feeling” Bernie Sanders’s prospects risk being blindsided by the U.S. election.But overall, stock swings shouldn’t impress.UBS Group AG strategist Stuart Kaiser predicts realized volatility on the S&P 500 Index will drop from about 19% in the first half of the year to 12% in the second half as growth trends turn positive and inflation momentum goes negative. Credit Suisse strategist Mandy Xu says it’ll average 13% over 2020 given that the Federal Reserve is on hold and likely to ease further if downside risks materialize. The VIX’s mean will be 15, Xu predicts, down slightly from 15.4 in 2019.“Policy risks or a more significant growth slowdown are needed to shift volatility notably higher,” Kaiser wrote in his 2020 outlook Wednesday.That doesn’t mean they see a boring year.“While trade risk has receded, geopolitical risks have emerged,” Xu wrote on Monday. “From the 2020 U.S. election to ongoing tensions in the Middle East, a number of catalysts could drive the VIX to excess of 25.”Xu and Kaiser like hedges on the iShares Russell 2000 exchange-traded fund. A slowdown in the economy could have a bigger effect on shares of small companies, which are highly cyclical and affected by trade tensions, Kaiser said, adding that his firm’s growth outlook for the first half of the year is below consensus.Cantor Fitzgerald LP chief market strategist Peter Cecchini agrees.“We not only prefer Russell 2000 put spreads to the S&P 500,” he wrote Thursday, “we are now high conviction that long-ish dated Russell put spreads are a must to any high-yield or equity portfolio with significant long exposure. The volatility surface allows hedged investors to effectively implement downside strategies in risk asset markets, which have generally lost their minds.”Tallbacken Capital Advisors LLC’s Michael Purves, however, advocates hedges on the VanEck Vectors Semiconductor ETF or the Technology Select Sector SPDR Fund as opposed to the Russell 2000 ETF. Small caps are among sectors that “have a lot of catch-up to do,” he said Thursday, while there are hints of “an early stage of a pivot” lower in momentum for semiconductors.Trading the ElectionThen there’s the U.S. election, which Kaiser says is “more tactical than structural” as a market event. He recommends trades like one- to three-month puts on the S&P 500.“We don’t expect the election alone to drive a regime shift in realized volatility,” he wrote. “We see the election as more of a tactical trade in the run-up to Election Day.”Xu points particularly to the Democratic primary as a potential surprise, given that volatility appears to be more affected by Elizabeth Warren’s poll numbers than those of Sanders, who is currently in a strong position in surveys.Volatility markets are “yet to feel the Bern,” she wrote, noting that long-dated volatility on assets like managed-care stocks “normalized with Warren’s fall in the polls. Yet investors seem to be forgetting about Bernie…”Societe Generale SA strategists led by Vincent Cassot recommend a long February-March futures spread, as well as shorting the VIX February 16 put versus the March 16-13 put spread. “February-March will be the most significant period in deciding the Democratic nominee for the U.S. presidential election in November,” they wrote in a note Friday. Trades from UBS include:Upside in Germany or Hong Kong in case of a risk/growth reboundGo long the Japanese yen in case U.S. growth slows and risk markets come under pressureShort oil volatility; selling upside on United States Oil Fund “is attractive”Trades from Credit Suisse include:Sell a June put on the Invesco QQQ Trust Series 1 to buy a call spread on the firm’s view of improving margin headwinds and strong earnings growthFor a cheap upside play, buy the S&P 500 June 103% call contingent on the SPDR Gold Shares fund being above 103% at expirationFor a macro risk-off hedge, try a June Euro Stoxx 50 95% put contingent on the euro/dollar pair being below 1.09, as that the region’s equities and currency tend to move together during periods of market stress(Adds Societe Generale recommendation)To contact the reporter on this story: Joanna Ossinger in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Christopher Anstey at email@example.com, Cecile Vannucci, Cecile GutscherFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- A new decade, a new record for U.S. stocks, which started this year much as they ended the last. But while large-cap equities thundered along, one pocket of the market was left out of the first-day festivities.For bulls heading into the new year betting on small caps, Jan. 2 was a disappointment. While the S&P 500 climbed 0.8% to a fresh high, the Russell 2000 of smaller firms fell 0.1%. Relatively speaking, the group, often considered as a leading indicator of the domestic economy, hasn’t had such a lousy start since 2013.While one day isn’t enough to get worked up over, the poor return for now defies consensus that a pickup in economic growth will lift smaller companies. The bad day coincided with a flattening yield curve in the bond market, a sign that investors may be adjusting growth assumptions after assets from equities to fixed income delivered the best year in a decade in 2019, according to Larry Weiss, head of equity trading at Instinet LLC in New York.“There is always some anxiety about how the markets will follow up a big year,” Weiss said in an interview. “Many still think we can avoid a recession in 2020, but signs seem to be pointing to some slower growth.”Large-cap equities have seen a lot of big starts over the last few years. The S&P 500, which jumped 0.84% Thursday, surged 0.83% in the first session of 2018 and 0.85% in 2017. Meanwhile, the Russell 2000 fell for the fourth day in five, bucking gains in the broad market. Part of the performance reflected a big difference in sector compositions between small- and large-cap stocks.Tech and communication stocks, some of the day’s winners, make up only about one fifth of the Russell 2000 while comprising a third of the S&P 500. On the other hand, the biggest losers such as utilities and real estate, have a bigger share in small-caps.Still, such diverging performance isn’t what bulls expect to happen. In a December survey conducted by Bloomberg, four of the five strategists predicted small-cap stocks will beat the S&P 500 in 2020, helped by relatively attractive valuations and a pickup in growth.Small caps have trailed the market in each of the past three years as profit slumped the most since 2009 and frequent recession fears drove investors into the safety of larger firms. While the economy is poised to improve, it may not be strong enough to fix the core problem for small-caps: a lack of earnings power, according to Michael Kantrowitz, head of portfolio strategy at Cornerstone Macro LLC.About 22% of companies in the small-cap universe are unprofitable, the highest proportion in the past 25 years outside recessions, data compiled by Cornerstone showed. Meanwhile, their leverage ratio, or debt versus equity, has surpassed their larger counterparts for the first time.“Growth hasn’t been strong enough to really lift some of the zombie, small-cap companies,” Kantrowitz said. “Even when we re-accelerate, like we believe in 2020, it’s going to be a mild re-acceleration because we already have full employment,” he said. “For small-cap companies that don’t earn a profit, we think investors will continue to shun these names.”To contact the reporter on this story: Lu Wang in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Brad Olesen at email@example.com, Chris NagiFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.
Wall Street's main indexes climbed on Friday, as concerns over global growth were allayed by largely upbeat U.S. jobs report and data out of China that showed factory activity expanded at its fastest pace in more than two years. The tech-heavy Nasdaq hit a record high for the first time since July, while the benchmark S&P 500 notched its fourth record high this week.
S&P500; closed Monday at historical highs, adding 0.55% on the day close. Both expected new Fed interest rates cut and possible US-China trade deal served as key drivers of recent market growth impulse. President Trump, in his Twitter, did not manage to avoid this event, attributing these merits to himself.
As we near the end of October 2019, a very interesting price setup is taking place across many of the US market sectors recently. We only have a total of about seven trading days left in October 2019 and the Financial Sector ETF is rolling over with what appears to be an Engulfing Bearish price pattern near price channel highs. Additionally, the tech-heavy NASDAQ (NQ) has been mostly weaker compared to the ES and YM.
We’ve been writing about the broader US stock market for many months – highlighting the Pennant/Flag formations that have continued to set up since early 2018. Sometimes, the keys to really understanding what is transpiring behind the scenes in the US markets is to pay attention to various market segments and to consider applying some “outside the box” thinking.
Thursday, investors can expect the weekly initial jobless claims figures, as well as existing home sales for the month of August.
Outspoken former White House Communications Director Anthony Scaramucci claims the president is 'unhinged' and in 'steady decline.'
Still, we believe the energy sector is setting up another great trade opportunity for skilled technical traders. Watch how this sets up below $46 and watch for deeper price moves below $45. Once the momentum base is set up, the upside price move should be very clean and fairly quick.