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TLDR: For much of the early part of the year, investors rode a wave of optimism. However, they are starting to worry, as evidenced by a resurgence in the demand for market hedges.
Joe Mazzola of Charles Schwab & Co highlights a growing awareness among investors that the seemingly untroubled start to the year, despite tightening monetary policy and other challenges, might be unsustainable. This sentiment is underscored by the Cboe Volatility Index (VIX) surging to its highest level since November.
Investors have gradually increased their protective measures since late March, notably through put options - effectively betting on or safeguarding against market declines. Interestingly, the preference has been towards hedges against significant downturns rather than minor corrections.
These strategies are not just being applied to broad indexes like the S&P 500, but also to specific sectors and companies, particularly in technology, which has seen substantial gains.
This cautious approach is mirrored in the equity markets, where the search for quality and growth has dominated investor strategy, as evidenced by the substantial inflows into relevant exchange-traded funds (ETFs).
Several factors are driving this shift. Investors face uncertainties including geopolitical tensions, domestic politics, corporate earnings, and central bank policies. Concerns have also grown as to whether the Federal Reserve will lower interest rates anytime soon.
History show that in the past 75 episodes where the VIX jumped 17% in 7 days, the S&P 500 historically saw median upside over the following 6 months? Where? Read on.
Here are the historically best and worst performing US sectors on a 6-month horizon, when the VIX has historically jumped:
The top 3 performing assets:
The bottom 3 performing assets:
In the past 10 similar occasions where Coca Cola stock dropped, Toggle's analysis reveals the stock tends to see a median upward movement in the following 1 week.
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Dec 12
preview