Displaying items by tag: volatility
Direct Indexing is the Volatility Antidote
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.
Why Stocks are Rising in the Face of Conflict
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.
There is No Risk Greater Than the Fed
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.
JPMorgan Says Now is the Time to Buy the DiP
Finding a successful stock market predictor is like finding a needle in a haystack, but JPMorgan says they have the indicator, and now is the time to buy in the stock market. The buying guide is when the CBOE Volatility Index grows by over half of its one-month moving average. This has a near bulletproof historical record, only falling during recessions in the last 30 years. Markets gained an average of 9% in the equities in the two quarters after the metric was triggered. Overall, JPMorgan is bullish about the near future in equities and believes there is a lot of runway ahead.
Finsum: Metrics like this can be an anomaly or indicative of something structural underneath, still a recession isn’t out of question with Fed taper tantrum possibilities.
Model Portfolios Help Mitigate Client Stress
Model portfolios allow the feel of tailored experience with the ability to hit wider audiences by addressing the specific risks, features or scenarios investors are concerned about. WisdomTree has been a leader in model portfolio development by providing options across diverse assets such as equity, fixed-income, strategic multi-asset, growth oriented, and dividend options. On top of this they build out scenario focused funds.Their fixed income funds are focusing on shorter duration quality bonds while dipping into alternative credit. They have also developed a variety of international funds that focus on developing countries in order to meet the needs of investors worried the U.S. equity market is too overvalued.
FINSUM: Model portfolios are giving advisors a strong option for targeted concerns that face their clients like volatility and inflation.