Stock-market investors are ‘living through 3 transitions’ and short-term volatility may be ‘gut wrenching’
This is a unique period for financial markets, buffeted not just by a wall of worry but a trifecta of inflection points that could feed off one another in the coming months and is sure to deliver turbulence for investors.
That is the summary of the outlook for Wall Street offered by BTIG researchers in a report featuring chief equity and derivatives strategist Julian Emanuel and equity strategy associate Michael Chu.
“We’re living through three transitions which, in a period of elevated volatility, are reminders that the path to the long term is a series of short terms — often gut-wrenching, both down and up,” the BTIG strategists wrote.
The researchers said that the three transitions that the market faces are as follows:
- Political: Joe Biden looks to be inaugurated on Jan. 20, 2021.
- Viral/Societal: Coronavirus vaccine news gives the world hope that “normalcy” will return by late 2021.
- Stylistic: Growth over value
Indeed, they note that the transition to a new presidency under former Vice President Joe Biden, the market’s reaction to news of progress on therapies and prospective vaccines for COVID-19, and hoped-for rotations into beaten-down value stocks and out of popular technology-related names, remains a hornet’s nest of potential challenges that will require deft navigation.
The Russell 2000 index finished Friday trade at an all-time high, marking its first such record since August 2018, and achieved those plaudits by producing a dazzling spate of outperformance against its large-capitalization peers on the week. The Russell 2000 index RUT,
Moreover, the popular value exchange-traded fund, the iShares S&P 500 Value ETF IVE,
So how best to chart a path forward?
Emanuel and Chu recommend hedging growth risk by using “pandemic lows” opportunistically to buy puts for the Invesco QQQ Trust QQQ,
