Quick take. Where to focus this week amid the hunt for lower-risk assets and downside protection
What is happening?
Markets are a sea of red and institutions brace for uncertainty and more pain for several key reasons. The sell-off started on Thursday last week in the US; with the unwinding of the 'carry trade' when Japan's central bank raised interest rates in the week, hiking rates for the second time in 17 years, taking rates from 0% to 0.1% to 0.25%. So now
Markets are a sea of red and institutions brace for uncertainty and more pain for several key reasons. The sell-off started on Thursday last week in the US; with the unwinding of the 'carry trade' when Japan's central bank raised interest rates in the week, hiking rates for the second time in 17 years, taking rates from 0% to 0.1% to 0.25%. So now
institutions are reversing the narrative of "borrow money from Japan to buy US tech stocks". This reversal is hurting markets because it's causing some liquidity concerns. You can't get free money anymore. And this is at a time when tech stocks have already fallen. And forward earnings two years out is not expected to be as good as this year or next. So, the risk-reward ratio has big money scratching their heads.
Secondly, there are concerns the US economy has weakened and is weakening and the Fed left it too late to cut rates (recent US manufacturing and US jobs data were disappointing and now there is real concern that this week's services sector data will be the nail in the coffin). Thirdly, what's also causing a lot of concern is that Middle East tension is rising.
What to watch
Markets. US markets saw their biggest two-day selloff since March 2023. But the futures say more pain is ahead. The Nasdaq $NASDAQ 100 Index (.NDX.US)$ 100 fell 4.8% in two days (Thurs, Fri) and entered a correction (it's now down 10.7%) with big tech losing $3 trillion of value in less than a month. Meanwhile, on Monday Australia's market $S&P/ASX 200 (.XJO.AU)$ quickly fell from its record all-time high of 8,149 points falling 3.8% to about 7,649. And the technical analysts among us might say it broke its uptrend since October. That's a concern, meaning more selling could come for the Aussie market.
Futures and VIX. At this stage, the Futures are suggesting the S&P500 could open 2% lower on Monday. Meanwhile, if you look at a measure of stock-market volatility and fear, the VIX $CBOE Volatility S&P 500 Index (.VIX.US)$ it has doulbed since Friday to today.
This is important. The VIX hit 38, which is its highest level since 2020. This reflects large institutional investors are hedging their portfolios expecting further downside. Buying options (puts) that make money when the market falls. So when we say the VIX 'the market's fear gauge' is spiking, we are saying you may want to bracing for further pain; as investment managers are BUYING puts, hoping to make a profit should the market fall. And at this stage, given the wild moves in the VIX and futures, then this is something to consider.
On the postive (as at 8.26pm AEST) it was good the VIX fell from its peak today back at 30, which is still the highest level since October 2022.
Today the Aussie market $S&P/ASX 200 (.XJO.AU)$ fell 3.4%, losing $45 billion in market value with only 6 stocks trading higher. The market is indicating that there is a lot of major concern in the air right now, and people are panicking. As for the stocks seeing selling? It seems the carry trade (borrow money from Japan at 0%, and use it buy tech stocks) seems to be unwinding, plus Eco' slowdown concerns are hurting tech stocks today on the ASX. Square $Block (SQ.US)$ is down 10.5%, and Zip $Zip Co Ltd (ZIP.AU)$ is down 7.4%.
But it's not all doom and gloom. If we pull apart the stocks that did well, we can see that no matter what happens, we need to remember this: yes, the broad market is bracing for more selling. But people still 'need' to sleep peacefully (think $ResMed Inc (RMD.AU)$ which is why its shares are higher as sleep apnea support is not likely to change). People still might want to eat pizza, which is why $Domino's Pizza Enterprises Ltd (DMP.AU)$ shares are up, and people probably want to get paid dividends too (think about $Rio Tinto Ltd (RIO.AU)$, which is one of the best dividend payers in the Australian market). Also, consider that people still want to invest in assets that are growing in this climate, like gold. So stocks like $Red 5 Ltd (RED.AU)$ and $Northern Star Resources Ltd (NST.AU)$ are higher today.
In the US on Friday if you look at the $S&P 500 Index (.SPX.US)$ also note that amid liquidity concerns and economic growth worries, we're seeing the rotation into dividend-paying sectors and 'defensive sectors' play out too. So utilities, healthcare, and staples are rallying. This is normal amid a risk-off and 'recessionary' climate. Look at how the sectors performed on Friday.
What else to watch this week? SMCI $Super Micro Computer (SMCI.US)$ earnings. Investors will be looking for signs if the chips sector will be the beneficiaryof more company spending. We are also watching the RBA tomorrow that is expected to hold rates. And US services as we mentioned above is hugely important. We will be watching to see if the Semi/chip sell off and tech sell of as ended. So watch stocks in that space. And ETFs such as $iShares Semiconductor ETF (SOXX.US)$ and $VanEck Semiconductor ETF (SMH.US)$
Investing and trading focus this week? Remember that everyone has their own strategy for investing but here are some ideas
1) hedging for downside. Deflation of risk assets such as tech, bitcoin, high PE stocks is likely. So consider hedging via options. Also look at inverse ETFs that do well well tech falls such as $SQQQ $ProShares UltraPro Short QQQ ETF (SQQQ.US)$ which is popular at moooo. Or look at popular inverse stock ETFs. If you think that $NVIDIA (NVDA.US)$ which is now down 25% from its high has room to fall further, look at ETFs such as NDS $GraniteShares 2x Short NVDA Daily ETF (NVD.US)$ which is also popular
2) Portfolio positioning for risk-off ( consider locking in profits? )
3) A lower USD and higher Gold price. Gold ETF flows are their highest since March 2022. See my prior write ups on gold. And why gold has increasingly become attractive4) Middle-East tension is rising. Watch ETF $Ishares Trust U.S. Aerospace & Defense Etf (ITA.US)$ & defense stocks
5) Consider 'defensive/recessionary stalwarts': People still need medical equipment/ to eat/ drink. Take today's moves on the ASX maybe as inspiration maybe. ResMed $ResMed Inc (RMD.AU)$ +5% today, TPG $TPG Telecom Ltd (TPG.AU)$ +1.7%. Domino's Pizza $Domino's Pizza Enterprises Ltd (DMP.AU)$ +0.7%. On Friday in US DoorDash $DoorDash (DASH.US)$ +8.35%, McDonalds $McDonald's (MCD.US)$ +2.95%, Oreo-Cadbury parent Mondelez $Mondelez International (MDLZ.US)$+3.5%, Coca-Cola $Coca-Cola (KO.US)$ +2.7%, PepsiCo $PepsiCo (PEP.US)$+1.7%.
For ideas on options - click here.
Or to read more click jere tp read more on what to expect in the Week Ahead (with SMCI, NVO, LLY and DIS Earnings; and ISM Services Report)
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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151453268 witso : Wow jess you are pulling the trigger and heading for the safe havens, probably good traffic control considering the state of uncertainty our leaders keep promoting, and i use the term leader very loosely. I can only sit tight have a Pepsi and hope my hair doesn’t catch fire. PS more of a coke drinker
