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CNBC
4 days ago
- Business
- CNBC
A simple options strategy that defines investor risk as the S&P 500 reaches new heights
Markets remain in melt-up mode as shorts run for cover. U.S. equities opened higher once again on Friday morning after the S & P 500 and Nasdaq 100 both notched another closing all-time high on Thursday. That is the S & P 500's ninth record close of the year. I believe the S & P 500 will continue to move higher this summer, but I want to use options on SPDR S & P 500 ETF Trust (SPY) to define risk in the event the underinvested and shorts take a break from chasing stocks higher. Another catalyst that has been added into the bull case is the continued lowering inflationary data (or lack of inflation appearing from trade tariffs) coupled with robust initial Q2 earnings reports. Although it's early in the earnings season as the big banks just kicked off the reporting period this week, 51 of the 55 companies that have reported earnings since the start of season this week have beaten consensus analyst EPS estimates. That's a beat rate of 93%, well above the 20-year average beat rate of 63%, Bespoke Investment Group data shows. Optimism abound, but I believe it is also prudent to define risk when investors experience a severe sentiment shift as markets have endured since April. As many strategists tripped over themselves to lower their 2025 S & P 500 price targets subsequent the "liberation day" initial trade tariff sell-off, that highlighted a buying opportunity as the VIX vaulted over 60. Now that these same analysts are readjusting their S & P 500 price targets significantly higher, I have short-term caution on how much more room this melt up may have. However, there is a record amount of money sitting in cash potentially looking to get back in the equity markets and moreover, that is why I prefer to use options to define that risk and exposure. Normally, I would like to utilize a call spread to reduce cost into upside participation. Due to the parabolic move that we have witnessed since the S & P 500 kissed 4,800 in April, I do not want to limit my upside here and I am comfortable risking the (expensive) amount I am paying for this upside call I am buying. Owning the call is more strategic than owning SPY at these levels. I am also using this as a stock replacement strategy as I am closing some of my long SPY position. Buying a SPY call option Bought the Aug. 29 SPY $630 call for $12.90 This call option is a debit of $1,290 This trade was executed when SPY was roughly trading $629 DISCLOSURES: Kilburg is long these $630 calls, long SPY All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
Daily Mail
14-07-2025
- Business
- Daily Mail
New research shows investors' politics are shaping their portfolios
The success of investors' stock market portfolios is increasingly dependent on how they vote, new research has found. Americans are increasingly buying and selling stocks based on their political associations with profound consequences for their portfolios. There is currently a 47 percentage point gap between Republicans thinking stocks will rise in the next six months compared to their more bearish Democrat peers. Meanwhile Democrats who expect stocks to fall over the next six months exceed Republicans by 59 percentage points. It is the largest sentiment gap on the stock market's trajectory since 2001, according to Gallup data. This 'optimism' gap is leading both political persuasions to make different trading decisions. Wealthy individuals who voted red or blue are also increasingly buying different stocks, The Wall Street Journal reported. Investing $1,000 in 1953 but only holding stock when a Republican was president would yield $29,000 today, according to Paul Hickey at Bespoke Investment Group. Doing the same but only investing when a Democrat was in the White House would roughly double the sum. However, neither strategy would beat simply buying and holding throughout the entire period, which would leave the investor with $1.9 million today. The divide between Red and Blue voters' portfolios began in 2013 under Barack Obama's presidency. The gap continued to widen in the following years following Trump's election in 2016, according to Elena Pikulina who collected and studied data from more than 300 independent investment advisers. 'If I know how people voted, I could tell you how they feel about the stock market,' David Sadkin, partner at Bel Air Investment Advisors, told the Journal. Sadkin recalled how one of his wealthy clients, who do not approve of the President, inquired about moving all their assets abroad because they were afraid they would sink under Trump's second term. On the other hand, Trump voter Bruce Besten, 68, told the Journal that he believes his investments will do well under the current administration. 'In general, when a person with his mindset is in office, it's good for the business environment,' the restaurant owner from Louisville, Kentucky explained. 'What's good for the business environment is good for the stock market.' He told the outlet that media 'hype' about how tariffs would batter the economy created buying opportunities for him during the market collapse in April , when he bought American stocks including Nvidia.
Forbes
02-07-2025
- Business
- Forbes
Bull Vs. Bear: S&P 500 Market Outlook For The Rest Of 2025
(Photo By) After a gut-wrenching 19% drawdown in the S&P 500, financial markets staged a remarkable recovery to end the first half of the year in positive territory. The worst of the tariff news appears to be in the rearview mirror, and calls for a global recession have receded. But risks still remain, and investors still need to put money to work. So, what is the outlook for the second half of the year? Here are the bull and bear case scenarios. Bull Case Scenario The April drawdown did not upend the current bull market, although it was close. The standard definition of a bear market is a 20% drawdown from the highs. According to data from Bespoke Investment Group, there have been six other instances in the last 80 years where the S&P 500 experienced a near bear market—defined as a decline between 18.5% and 19.99%—and then rallied more than 20% in under two months. In every one of those cases, the market was higher one year later, with an average gain of nearly 24%. Momentum is still positive. Unlike the mega-cap tech rallies of the previous two years, the current rally has been supported by broad participation. Except for consumer cyclicals, which have been pulled down by Tesla's 25% fall, all sectors of the S&P 500 are positive on the year. Industrials are the top-performing sector year-to-date, rising 13%, with General Electric's 50% gain one of the key drivers. With the cap-weighted S&P 500 index back near its four-year high valuation of 23.1 times forward earnings, critics point to overvaluation as an impediment to further price gains. However, valuation is not nearly as much of a concern if one strips away the influence of the largest stocks. On an equal-weighted basis, the S&P 500's 18.1 price-to-earnings valuation is more in line with historical norms. In other words, the average stock is not nearly as expensive as the index suggests. Tariff concerns prompted the Federal Reserve to become cautious about its interest rate outlook. Policymakers took a wait-and-see approach to the impact of the new tariffs, expecting the higher import prices to drive up consumer prices. That has not materialized as of yet. In fact, the outlook appears to be improving. Markets are expecting additional deals to be announced before the administration's July 9 deadline, with the result being lower tariffs than initially projected. Financial markets have reversed course and begun to price in additional cuts to the Fed Funds rate by year-end. Several large investment banks, including Goldman Sachs and Citigroup, now expect the Federal Reserve to ease monetary policy by 0.75% in 2025. Lower interest rates should act as a tailwind to the stock and bond markets. Meanwhile, longer-term government bond yields have also started to decline, which should have a positive impact on the housing market and other interest rate-sensitive sectors of the economy. The Bear Case Scenario Risk-taking has come roaring back. Bloomberg reports retail investors are piling into meme stocks, which rose 44% in Q2 2025. The CNN Fear & Greed Index, a compilation of seven indicators that measure aspects of stock market behavior, including market momentum, put and call options, junk bond demand, market volatility, and safe-haven demand, has moved firmly into greed territory. In the past, this kind of euphoria has made the market vulnerable to bad news. Capex growth in AI infrastructure, while still positive, is beginning to slow. Data center construction spending, which had been rising at a 30% growth rate, is now closer to 10%, according to Bespoke Investment Group. Analysts also expect capital expenditures spending as a percentage of revenue to plateau through year-end. If true, one of the market's biggest growth engines may be running out of steam, with implications for semiconductors, AI hyperscalers, and electrical utilities. Job growth has slowed significantly, with monthly payroll gains averaging below 125,000, well off the pace of prior years. Job openings per unemployed worker are falling, and private indicators show growing slack. Sectors like healthcare and leisure & hospitality are driving most of the new jobs, while other sectors, such as tech, retail, and government, are seeing hiring slowdowns or outright declines. For example, Microsoft announced a second wave of layoffs on July 2, which would eliminate roughly 4% of its workforce, or approximately 9,000 people. U.S. equity markets are no longer the lone engine of global growth. Year-to-date, the U.S. has lagged its G7 peers and underperformed global equities more broadly. Countries such as Spain, Mexico, Germany, and Italy have posted gains of 30% or more, driven by expectations for defense-related fiscal stimulus and a weaker U.S. dollar. The U.S. is no longer the automatic first choice for global equity investors, and many international investors are overweight in U.S. markets within their asset allocation. If relative growth prospects outside of the United States continue to improve, the non-U.S. equity markets could sustain their outperformance. Stay Invested And Stay Diversified Markets are forward-looking, and much of the good news may already be reflected in prices. That doesn't mean the rally will end tomorrow, but it does mean investors should temper their expectations. Fundamentals remain solid, but sentiment and valuations are stretched. Breadth is encouraging, but trade policy jitters could return as the July 9 deadline for agreements approaches. Diversification will matter in the second half of 2025, just as it did in the first six months of the year. Maintaining exposure to international markets, which are generally less expensive from a valuation perspective, can also help protect portfolios if the U.S. dollar continues to weaken. The remainder of 2025 may not be as terrifyingly volatile as the first half, but investors need to be prepared for anything. Staying invested has proven to be a better long-term strategy than trying to pick a top and time the market.
CNBC
01-07-2025
- Business
- CNBC
Market doesn't seem worried about budget deficit in Trump's bill, says Bespoke's Paul Hickey
Paul Hickey, Bespoke Investment Group co-founder, and Jose Rasco, HSBC Global Private Banking, joins 'Closing Bell Overtime' to talk the day's market action.
CNBC
27-06-2025
- Business
- CNBC
Bull market officially lives on with fresh S&P record, nears 1000 days
The S & P 500 punched through to a new record high on Friday, creating another milestone for a bull market that is now approaching its third birthday. The S & P 500 is up more than 70% since the current bull market began on Oct. 12, 2022, a period of 989 days, according to Bespoke Investment Group. And that's not even long in the tooth, historically. For example, the bull market between 2009 and 2020 lasted 3,999 days and delivered a 400% return. The bull market that ended with the 2000 popping of the dot-com bubble was even more impressive, stretching back to shortly after the 1987 crash and lasting nearly 4,500 days, with a return of 582%. Even if the current run never reaches those dramatic lengths, what may set this bull market apart in the history books could be how close it came to ending early. At its low on April 8, the S & P 500 closed 19.8% below its previous record high. That was a razor thin margin call for the bull market, which technically would have stopped if the index closed down 20% on any day from its previous high. Of course, it's not unusual for stocks to bounce back after a dramatic sell-off, but the strength of this rebound has been unusual. "It's been a remarkable recovery," Frank Gretz, technical analyst at Wellington Shields, told CNBC. "The credentials for a low were there. So I wasn't surprised at the low, I'm surprised by the extent of the recovery." .SPX mountain 2022-10-12 The current S & P 500 bull market began in October 2022 and is nearly 1,000 days old. And the rebound does not have to end here. Gretz said that the positive breadth of the most recent up move for stocks — the number of stocks participating — plus the fact that economically-sensitive companies such as Parker-Hannifin are doing well, is a sign the bull market can continue to climb. To be sure, the fundamental outlook for stocks is still cloudy, with uncertainty about tariffs and the Federal Reserve's interest rate policy hanging over the market. UBS global wealth management's chief investment office reiterated its neutral view on the stock market in a note late Thursday, but David Lefkowitz, the group's head of U.S. equities, did say there's cause for optimism. "The good news is that growth and inflation should start to improve later this year once the economy adjusts to the one-time impact of the tariffs. Falling inflation and accelerating economic growth tends to be a favorable backdrop for stocks. The icing on the cake could be a resumption of Fed rate cuts later this year," Lefkowitz said in a note to clients.
