Displaying items by tag: volatility

Federal Reserve Bank Chairman Jerome Powell spoke last week on a panel hosted by the ECB, and relayed his frustration about the ongoing inflation pressures in the US economy. Powell said the economy’s most important concern is getting people vaccinated and containing Covid’s delta variant. Powell said the key inflationary pressures remain supply chain bottlenecks in the US economy. These supply constraints have the U.S.’s key inflationary measure (core personal consumption expenditure) elevated to its highest level in 30 years. The FOMC has raised their expectation for inflation from 3% to 3.7%, and Powell said this could continue into 2022. Powell’s Analysis was backed up by both Japan and the ECB’s respective leaders.

FINSUM: The supply shock to the economy remains as chip shortages still persist. As long as supply chains remain disrupted the unemployment/GDP and inflationary goals of the Fed will remain in conflict.

Chinese regulators have come after everything from internet companies to education platforms, and this has left many investors skittish. Investors that would have maintained their convictions would have been well-suited, as since mid-August Chinese internet companies have bounced. Over this same time frame the MSCI Emerging Market Index, which holds a large share of Chinese companies, has doubled the return in the S&P 500. China’s focus on future regulation will better promote growth moving forward. The structure formed may benefit semiconductor companies, smart manufacturing, alternative energy, machine learning, cloud computing, autonomous vehicles, and other internet-related companies. Finally, Chinese companies have been quick to undue overwrought regulation and long-term regulation will be moderate.

FINSUM: Investors shouldn’t be too fickle with China, don’t spend too much time trying to nail regulatory swells, and embrace the long haul.

(New York)

A successful 8-month streak has put the market well above expectations, and there are reasons to still be optimistic, but the number of protection plays is growing on Walls Street. Whether it is a slowing economy, rising inflation, spreading delta variant, or tapering tantrum there are lots of reasons to stay protected which is why over $5 billion in inflows are headed to volatility-based protections. Funds like the Simplify Interest Rate Hedge ETF (PFIX) offer a direct hedge against a future of the interest rate market by placing a call on Treasury derivatives. A wider hedge against the ETF like the Simplify Volatility Premierm ETF (SVOL) which can generate a yield from swings in the Cboe Volatility Index. This hedge is less specific than the PFIX but it gives investors a bigger safety net in any of the scenarios above or unforeseen risks in the economy.

FINSUM: Honestly leave the bond hedges to the past as there is no return. Instead, SVOL and PFIX are hedges that will likely clip the Treasury return anyway and provide more relief in case equities go upside down.

(New York)

The annuities market is healthy and doing well. According to Ken Burger, national sales director for annuities at Luma, “When you look at our current market environment of minimal low fixed-income yields, high levels of volatility, and fears of mounting inflation, it’s easy to see the attractiveness of the annuity category”. The issue for advisors though is that annuities have long been a complicated and crowded space that is too complex and time-consuming for advisors. That is where Luma is trying to expand the market, as they have a slick annuities comparison tool that allows advisors to easily compare annuities side-by-side.

FINSUM:Annuities are a great fit for the current market given ultra-low rates and the huge mass of Americans who are retiring. Check out Luma.

(New York)

The bond market is in an odd place right now. For the first part of the year, yields jumped on the threat of inflation. Then in the middle of Spring, those fears started to wane and yields started to fall. Other than a quick reversal of direction off a hot June inflation reading, that has been the trend all summer. However, the whole market looks very vulnerable to a change in sentiment. If inflation comes in warm again for July—especially coupled with some very good jobs numbers—the overall economic picture might move back to bullish, which could swing yields rapidly back in the direction they were headed in Q1.

FINSUM: Essentially this market could quickly realized it mispriced the direction of the economy, so there is a lot of risk for advisors and their clients. Nasdaq and Fidelity are having an interesting webinar on how to plan for this risk. Check it out here.