Eq: Total Market
The end of the bull market could be near, and with that in mind (and really any time), it is a good idea to have a preparation plan in mind. Markets have risen sharply this year, and are back near their peak from 2018, explaining why hedging activity is growing. So how to hedge? Defensive sectors and bond markets are popular, but what about things like options and the VIX? Well, that latter has been diminishing in popularity recently, as the CBOE’s VIX did not respond to Q4’s volatility the way many expected. This has led to claims the market is fixed, and in any case, it has not performed well as an S&P 500 hedge. That leaves S&P 500 hedges themselves, such as 30-day SPX put options.
FINSUM: If you understand and are comfortable with options, use them. If you don’t, stay away and stick to sector and asset class-based hedging.
Is the US economy breaking out of its short-term data tailspin? Maybe. This week has seen some improved news, none more so than new hiring data released this morning. US hiring in March was much better, with the economy creating 196,000 jobs, significantly higher than forecasted and up hugely from February’s barely positive numbers. Wage growth decreased slightly in pace, but was solid at 3.2%. The unemployment rate remained steady at 3.8%.
FINSUM: This could mean the weak data recently was just a blip and things are still on course. The data is lining up to show this might have been a big bond market overreaction…
JP Morgan is telling investors to get ready for a “new normal” of volatility. The bank’s CEO, Jamie Dimon is warning investors that global headwinds and liquidity constraints because of tighter regulations will mean there are bigger price swings in markets from now on. Dimon cited the Fed’s policy change, Germany’s slowdown, Brexit, and the US-China trade war.
FINSUM: We are so tired of this argument that tighter bank regulation hurts liquidity and leads to bigger market swings. Bank-provided liquidity is the great myth of the post-Dodd-Frank era. When markets get tough, bank trading desks often step away from the market, meaning liquidity vanishes just when you need it most.
The whole market has been on recession watch mode lately. The Fed has gone seriously dovish and weak economic data seems to be emerging by the day. However, some good news, at last: US jobless data just clocked in at the lowest level in 50 years, showing that the labor market is still tight. The numbers were in contrast to economists’ estimates for higher claims. Claims have fallen this far recently, but been revised higher later.
FINSUM: This is good news but it may not be indicative of much as this data could be slightly behind the hiring numbers, which have been weak recently.
The economic picture is growing increasingly gloomy for the US. While there has been sporadically good data, the general trend is downward across many areas. Today, more information on the labor market is signaling a further deterioration. ADP hiring data has been released and it shows that sector hiring has fallen to an 18-month low. The private sector hired 129,000 new workers, missing expectations. “The job market is weakening”, says Moody’s Analytics, bluntly.
FINSUM: The job market seems like a good leading indicator right now. Company’s may be tightening purse strings, which could be a sign that everything is slowing.
In another sign of a weakening economic landscape, new retail sales data was released for February, and it was not pretty. The data didn’t just slow, it actually reversed, with retail sales falling 0.2% month over month in February. The data was a big shock as economists were expecting a gain, especially after a revised 0.7% increase in January. The numbers suggest the economy may be in line for a contraction in Q1, as December also saw a big 1.6% decline in retail sales.
FINSUM: There are a lot of economic indicators looking negative right now. We are still optimistic, but the signs are getting harder to ignore.