Displaying items by tag: volatility

Macro factors are coalescing in a way we haven’t seen in years to produce the perfect storm of potential Volatility, and the VIX is just hovering around medium to long-run averages suggesting a potential swell could be incoming. Advisors should push clients to strategies that can avoid volatility rather than trying to guess this uncertainty. The best option may just be options; a covered-call strategy is a great way to avoid volatility. Investors can lean into betting on medium to long-run growth and sit out excess volatility. This strategy has setbacks particularly if stocks over-perform, so advisors and investors need to carefully monitor the futures market to take full advantage. 

Finsum: Now is a great time to take advantage of anti-volatility strategies, yes they don’t have the long-run games but they have strong protections for market volatility. 

Stagflation has been out of the public lexicon since the Greenspan era, but as inflation begins to gradually creep up again that word is beginning to seem like a higher probability. Inflation has climbed to 8.5% and growth is expected to slow dramatically for 2021Q1 to 1.7%. Small-cap is a great option during these times because they are a great alternative partially in Finance. Preferred Bank is a great option with earnings estimates rising and is moving into a bullish category on Wallstreet. Others to watch out for are Mercantile Bank Corp and Old Second Bancorp as they are also well-positioned small-cap financials to stave off stagflation.

Finsum: It's amazing that equities are the most stabilizing force on Wallstreet right now, but small-cap might just be the play as volatility rises.

Direct indexing is one of the fastest growing market segments and investors surveys confirm that customization is king of the modern landscape. Curulli Associates forecasts that direct indexing will grow faster than ETFs and mutual funds. Custom indexing has a legg up on traditional ETFs when it comes to volatility because investors can harvest losses as the market takes dips. With traditional ETFs investors have to just eat the losses as they slow the long run growth of the fund, but micro dips can be maximized by taking advantage for tax purposes, say industry quants.

Finsum: It's clear that direct indexing has advantages over traditional ETFs, but even when compared with their fees the tax savings is worth it for direct indexing strategies.

Investors, advisors included, seem to be wondering why the stock market has done quite well since Thursday morning when Russia invaded Ukraine. Many expected stocks to tumble—and they initially did—but the opposite has happened, with the S&P 500 up around 5% since the close of business on the 23rd. The reason why has everything to do with the Fed and interest rates. The market now thinks the Fed is in a bind and won’t be able to hike rates as fast as they would have been able to before the conflict. This would mean a slower stop of the easy money surge that has gone on for years. Markets are now only forecasting a 12.5% chance of a 50 bp hike in March.

FINSUM: Stocks have jumped as a simple reaction to the fact that the path of rate hikes looks less steep right now than it did a week ago, which is also why the tech-heavy Nasdaq has jumped the most.

Inflation surged to a nearly 40-year record high as the CPI index annual inflation pushed to 7.5%. This number was well above expectations and even core inflations 6% posting came in higher than consensus. In response, the Fed is going to tighten and do so significantly as regional Fed Presidents are expecting a 1% rise in the Fed Funds rate. This is a seriously hawkish turn and given there are only 3 more FOMC meetings with projections that would imply a 50-basis point rate hike possibility. The fed hasn’t hiked rates that quickly since the turn of the century. Investors are saying the Fed will want to hike by 50-basis points to keep its credibility.

Finsum: Hikes that steep could destroy the record recovery the US has had, it could lead to major windfalls in equities markets.