Last week, the global financial markets experienced a dramatic volatility due to the closing of yen arbitrage trades and concerns about the weakening US economy. On August 5th, the global stock market experienced a 'Black Monday', beginning with a plunge of about 12% in the Japanese stock market. The volatility quickly spread to global stock markets, causing the market turbulence to sharply rise, with the 'panic index' known as [VIX] soaring 181% to 65.73. However, in the following trading days, market sentiment gradually stabilized, and global stock indices rebounded one after another, almost recovering all the lost ground at the beginning of the week. Market volatility also decreased significantly, with VIX closing at a low of 20.86 last Friday. It can be confirmed that the panic in the market liquidity has come to an end. Previously, the market was generally concerned about the massive closing of yen carry trade positions, triggering a global liquidity crisis similar to that in March 2020. Firstly, the yen shorts held by high-leverage funds have rapidly shrunk to the lowest level this year, and leverage trading in the Japanese stock market has reduced quickly as well. Secondly, the relevant indicators that measure global liquidity, such as the currency basis between the yen and the US dollar, have not risen any further. Financial institutions have not been significantly impacted by this market turbulence, which is significantly different from what happened in March 2020. Market volatility may persist. Nevertheless, investors still need to remain highly vigilant because it is uncertain whether the market turbulence has truly ended. The uncertainty of US macroeconomic data, the continued escalation of geopolitical tensions, and the upcoming VIX option expiration on August 21st could all become new factors driving market volatility. $CBOE Volatility S&P 500 Index (.VIX.US)$ The 'noise' in the US economic data has made it difficult for the market to figure out what's going on. The decrease in non-farm payroll employment in July, which plunged to 0.114 million from the previous month, and the unemployment rate rose higher than expected to 4.3%, triggering the 'Sam rule' recession threshold. However, the initial jobless claims fell to 0.233 million last week, and the job market does not seem to be that bad. In addition, PMI data showed a divergence of 'manufacturing down, services up', which makes it more difficult for the market to judge the prospects for the US economy. This week, there will still be a series of key economic indicators such as July CPI inflation, retail sales data, and initial claim for unemployment benefits. Investors will judge whether American households face more inflation and pressure from higher interest rates, and significant market volatility in the short term may still be unavoidable. Citi Research expects the S&P 500 to experience at least a 1.2% wave of volatility when CPI report is released on Wednesday. Although this does not necessarily indicate an economic hard landing or recession, market instability may limit the upside of the stock market.
In the face of geopolitical concerns, Iran and its Middle Eastern proxies may become a new concern for the market this week. On Monday local time, John Kirby, spokesperson for the White House National Security Council, stated that Iran and its Middle Eastern proxies may launch major attacks this week, and the US and Israel are strengthening their military deployments to deal with emergencies. This news has had a significant impact on crude oil and gold prices, which have seen a sharp rise on Monday, and may further exacerbate market volatility. Analysts warned that a new round of Iranian attacks on Israel may occur in August, when trading volumes are low, which could further exacerbate the reaction of the stock market. Although overnight stock market volatility was not great - the three major indices overall rose and fell inconsistently, the market still experienced collective 'black' during the trading day, and some industry insiders speculated that the news of Iran's possible attack on Israel had stirred short-term panic. Finally, Goldman Sachs' latest analysis suggests that investors should be prepared for market volatility over at least the next eight trading days. The bank also notes that the market is expected to continue its volatility until the August 21st VIX option expiration date. Goldman Sachs believes that given the huge number of open options on the market, the expiration of VIX options will be more important than ever before. Getting through this critical date will help to release the balance sheets of market participants and may therefore boost market liquidity. In addition, VIX futures liquidity is currently at an all-time low, which could further impact market volatility. Defensive strategies may still be necessary in the short term.
I can confirm that the panic in the market liquidity has come to an end. The market was previously generally concerned about the massive closing of yen carry trade positions, triggering a global liquidity crisis similar to that in March 2020. However, firstly, the yen shorts held by high-leverage funds have rapidly shrunk to the lowest level this year, and leverage trading in the Japanese stock market has reduced quickly as well. Secondly, the relevant indicators that measure global liquidity, such as the currency basis between the yen and the US dollar, have not risen any further. Financial institutions have not been significantly impacted by this market turbulence, which is significantly different from what happened in March 2020.
Firstly, the yen shorts held by high-leverage funds have rapidly shrunk to the lowest level this year, and leverage trading in the Japanese stock market has reduced quickly as well. Secondly, the relevant indicators that measure global liquidity, such as the currency basis between the yen and the US dollar, have not risen any further. Financial institutions have not been significantly impacted by this market turbulence, which is significantly different from what happened in March 2020.
Market volatility may persist.
Nevertheless, investors still need to remain highly vigilant because it is uncertain whether the market turbulence has truly ended. The uncertainty of US macroeconomic data, the continued escalation of geopolitical tensions, and the upcoming VIX option expiration on August 21st could all become new factors driving market volatility.
The 'noise' in the US economic data has made it difficult for the market to figure out what's going on.
The decrease in non-farm payroll employment in July, which plunged to 0.114 million from the previous month, and the unemployment rate rose higher than expected to 4.3%, triggering the 'Sam rule' recession threshold. However, the initial jobless claims fell to 0.233 million last week, and the job market does not seem to be that bad. In addition, PMI data showed a divergence of 'manufacturing down, services up', which makes it more difficult for the market to judge the prospects for the US economy.
This week, there will still be a series of key economic indicators such as July CPI inflation, retail sales data, and initial claim for unemployment benefits. Investors will judge whether American households face more inflation and pressure from higher interest rates, and significant market volatility in the short term may still be unavoidable. Citi Research expects the S&P 500 to experience at least a 1.2% wave of volatility when CPI report is released on Wednesday. Although this does not necessarily indicate an economic hard landing or recession, market instability may limit the upside of the stock market.
In the face of geopolitical concerns, Iran and its Middle Eastern proxies may become a new concern for the market this week.
On Monday local time, John Kirby, spokesperson for the White House National Security Council, stated that Iran and its Middle Eastern proxies may launch major attacks this week, and the US and Israel are strengthening their military deployments to deal with emergencies. This news has had a significant impact on crude oil and gold prices, which have seen a sharp rise on Monday, and may further exacerbate market volatility.
Analysts warned that a new round of Iranian attacks on Israel may occur in August, when trading volumes are low, which could further exacerbate the reaction of the stock market. Although overnight stock market volatility was not great - the three major indices overall rose and fell inconsistently, the market still experienced collective 'black' during the trading day, and some industry insiders speculated that the news of Iran's possible attack on Israel had stirred short-term panic.
Goldman Sachs' latest analysis suggests that investors should be prepared for market volatility over at least the next eight trading days. The bank also notes that the market is expected to continue its volatility until the August 21st VIX option expiration date.
Given the huge number of open options on the market, the expiration of VIX options will be more important than ever before. Getting through this critical date will help to release the balance sheets of market participants and may therefore boost market liquidity. In addition, VIX futures liquidity is currently at an all-time low, which could further impact market volatility.
Defensive strategies may still be necessary in the short term.
In conclusion, the current market environment is full of uncertainty and challenges. Due to concerns about the macroeconomic and geopolitical background, analysts predict that market volatility will continue. It is recommended that investors adopt defensive strategies in the short term, including medical care stocks, and stocks sensitive to interest rate changes.
Marko Kolanovic, the chief global market strategist at JPMorgan, recently stated that the likelihood of a soft landing for the US economy is not as great as some investors imagine. As economic prospects become bleaker, investors should seek protection in some defensive stock sectors, according to reports. These 'purely defensive stocks' include utilities, medical care, and other stocks.
Utilities sector
When the macroeconomic environment is uncertain, stocks sensitive to interest rates, such as utilities, real estate investment trusts, and dividend-paying stocks, are more attractive to investors. Currently, the rate of return on the S&P 500 utilities index is slightly higher than 3%. Since the beginning of the year, the index has risen by around 16%, outperforming the broad market. Oppenheimer has listed some prominent industry recommendations in its OPCO Trifecta list, and the report recommends four utility stocks including $Pentair (PNR.US)$Please use your Futubull account to access the feature.$Republic Services (RSG.US)$Please use your Futubull account to access the feature.$Waste Connections (WCN.US)$Please use your Futubull account to access the feature.$XPO (XPO.US)$.
Here are some utility-related ETFs in the US stock market for everyone to choose from:
1,$Utilities Select Sector SPDR Fund (XLU.US)$ iShares U.S. Utilities ETF: With a market cap of over $16.8 billion, this ETF is the largest utilities ETF by market cap. It has risen by more than 18% since the beginning of the year, outperforming the technology stock ETF. $The Technology Select Sector SPDR® Fund (XLK.US)$.
2,$Vanguard Utilities ETF (VPU.US)$ Vanguard Utilities ETF: The total market value of this ETF is now over $6.1 billion, and it has risen by more than 18% year-to-date.
3,$Ishares U.S. Utilities Etf (IDU.US)$ Fidelity MSCI Utilities ETF: The total market value of this ETF now exceeds $1.3 billion, and it has risen by nearly 19% year-to-date.
Medical care industry
The medical care industry is often seen as a safe haven during market turmoil. When other sectors of the market become overbought, investors turn to this sector. Last month, the S&P 500 medical care index rose by around 3%, outperforming the broad market drop of more than 4%. David Harden, Chief Investment Officer of Summit Global Investments, believes that the trend of investors turning to medical care stocks has not yet ended.
According to Oppenheimer's technical analysis report, one recommendation is to buy the Russell 1000 healthcare growth stocks, which includes four medical care stocks, including $HCA Healthcare (HCA.US)$Please use your Futubull account to access the feature.$Merit Medical Systems (MMSI.US)$Please use your Futubull account to access the feature.$Neurocrine Biosciences (NBIX.US)$Please use your Futubull account to access the feature.$Viking Therapeutics (VKTX.US)$.
In addition, here are some healthcare-related ETFs in the US stock market for everyone to choose from:
1,$The Health Care Select Sector SPDR® Fund (XLV.US)$ iShares U.S. Healthcare ETF: With a total market value of over $40 billion, it is the largest healthcare industry ETF by market cap. Its cumulative increase in value since the beginning of the year is more than 10%.
2,$Ishares Global Healthcare Etf (IXJ.US)$ : The total market value of this ETF currently exceeds USD 4.1 billion, with a cumulative increase of more than 11% since the beginning of the year.
In addition, there are other related ETFs available for investors to choose from in the market. Mooers can click on Market > ETF > Thematic ETF > Industry ETF to view.
Editor / jayden