Investors urged to embrace uncertainty as summer progresses

The stock market has recently faced some headwinds, as the hopes for Fed rate cuts in 2023 fade and investors start to feel the consequences. Both the S&P 500 and Nasdaq Composite have lost ground, with five losing sessions out of the last six.

One significant event during the last quarter was the S&P finally breaking past the resistance level of 4,200 in June. According to a team at Evercore ISI led by Julian Emanuel, this created some uncertainty for investors, marking a “pressure point” for bulls and bears alike.

Despite this uncertainty, Emanuel and his team are urging investors to embrace it, explaining how to manage both sides of the stock market throughout the summer. The team notes that “the breakout above 4,200 caused a flood of funds to move into stocks…all these ‘new longs’ will be ‘underwater’ at 4,200.” They offer up a chart to illustrate their point.

However, they also point out that market pullbacks such as those seen in 2021 and 1999 are common and volatile. A move back up to 4,450 will likely reignite enthusiasm for stock market investment. The strategists suggest that a similar pattern occurred in 1999, when a 14.1% fall was followed by a 127% rise in NDX (the Nasdaq 100), indicative of a “chase”.

Overall, Emanuel and his team believe that uncertainty is an inevitable part of the stock market’s ups and downs. They urge investors to be flexible in their approach in both bullish and bearish markets.

Bears vs. Bulls: A Summer Showdown

As the battle between the bears and the bulls continues to unfold this summer, investors are faced with a difficult decision. Fortunately, Evercore has a strategy that can help, known as the strangle.

The strangle involves holding both call and put options with different strike prices but the same expiration date and underlying asset. This gives investors the ability to profit from both bullish and bearish market movements (you can learn more about strangles [here](insert link)).

To clarify, calls are options contracts that give the holder the right to buy the underlying security at a set price by a certain time. They are commonly used for bullish bets. Puts work the opposite way, giving the holder the option to sell at a set price. Emanuel and his team believe that investors who have a strong market view can place bets accordingly.

“With optionality remaining near its cheapest levels (VIX 14! VIX, -0.21% ) since the pandemic, we recommend buying the SPX Aug 4,450C/4,200P “strangle” (Buy call and put; upside hedgers can buy the call alone; downside hedgers the put) to capitalize on the idea that uncertainty should be embraced this summer, because anything can happen,” said Emanuel and his team.

For more insights, check out Evercore’s recent analysis of potential triggers for a selloff.

Read: What does a big first-half gain mean for the rest of 2023? Find out [here](insert link).

Market Update

Stock futures ES00, YM00, NQ00, are modestly higher, alongside bond yields TMUBMUSD02Y, TMUBMUSD10Y, with the dollar flat. Oil prices CL.1, are higher and the Hang Seng HSI, climbed 1.9% on a mixed day for Asia.

Snowflake shares SNOW are up nearly 3% after announcing AI-related partnerships with Nvidia and Microsoft.

Corporate Earnings Report

Results from Walgreens Boots Alliance WBA are ahead, with General Mills GIS and Micron Technology MU due Wednesday and McCormick MKC and Nike NKE on Thursday.

Lordstown Motors’ Bankruptcy Protection

Lordstown Motors shares RIDE dived as the electric vehicle maker filed for bankruptcy protection.

Economic Indicators Report

Durable goods orders are due at 8:30 a.m., followed by the S&P Case-Shiller home price index at 9 a.m., then new home sales and consumer confidence at 10 a.m.

IMF on Inflation in the Euro Area

According to the International Monetary Fund, corporate profits, not labor costs, are driving inflation higher in the euro area.

Best of the Web

New research suggests that rising home prices are to blame for the Great Resignation.

The High Cost of Pickleball Injuries and Impending Student Loan Payments

Last year, the world lost an equivalent of 11 football pitches of primary rainforest every minute due to deforestation. But closer to home, America is facing a different crisis – pickleball injuries costing the nation nearly $400 million in 2023, with seniors being hit the hardest.

Student Loans and Consumer Spending

As if the financial burden of pickleball injuries were not enough, American students with loans may have to cut back on their spending. A Jefferies chart compiled of data shows that these individuals spend almost one-third of their discretionary income at Amazon and Walmart. The upcoming resumption of student loan payments could impede consumer spending, as per Corey Tarlowe’s team of analysts.

Tickers to Look Out For

The top-searched tickers on ASOF at 6 a.m. are worth taking note of.

Unique Tales

Converting a boatshed may be an unusual idea for a living space, but it worked out for someone in New Zealand who sold their space for $1.2 million. Scooter, the world’s ugliest dog, may not have wowed the judges in looks, but its unique features won it the crown. On social media, a new TikTok trend involves people pretending to pass out after drinking a purple McDonald’s shake.

Need to Know delivers the latest news and updates, including financial reports and stories. Alternatively, listen to the Best New Ideas in Money podcast for more economics insights.

Leave a Reply

Your email address will not be published. Required fields are marked *

Previous Post

Central Bankers Gather to Discuss Struggling World Economy

Next Post

Delta Air Lines’ Revised Financial Guidance for 2023 and 2024

Related Posts