MACRO BACKDROP:
Happy Cyber Monday, folks. I hope you all had a great Thanksgiving last week and ate a lot of turkey. If you were out shopping on Friday, I hope you made it out alive. In general, markets appeared to have moved off of weak volume last week due to the holiday departure. This week, however, it appears all of the usual market participants have returned from holiday, but this time, they are out for blood. Equities caught a slight bid today, perhaps off of Cyber Monday & tech retail sales optimism or just short covering, in my opinion. However, from a macroeconomic perspective, this week could be harsh on equities given how many narratives are in play. We have the G20 meeting at the end of the week, with the world’s most powerful leaders in one place at one time, with many closely watching the interactions between President Trump and President Xi. From here, we also have weakness in the energy sector. Further out, we still see the struggle for Theresa May to propose a well-received deal to Parliament, but time is ticking and she has instead harped on a rather unpopular backstop provision, and members aren’t happy. Concerns over the near-future growth rate of the U.S. economy and the likelihood of interest rates going higher looks to have welcomed some real fear. Add, to all of this, the potential for a sector rotation and capital exodus out of U.S. markets and into emerging markets next year, and we have the perfect storm for severe drawdown for the typical, unhedged investor, in my opinion.
With macro events piling up, we can use index futures contracts in a variety of ways to define the risk to your portfolio over a specified period of time while the markets digest the news, and potentially capture some downside protection. For those borrowing or lending capital in the near future, uncertainty regarding FOMC activities may present interest rate risk; therefore, I can offer some protective strategies for that as well.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
For questions, comments or deeper conversation regarding these insights or to talk more specific trade ideas, please reach me via email: bsears@walshtrading.com or my direct line: (312) 957-8079.