Investors remember ‘stocks can go down’ in return to hedging
Hedging is back as investors fret over concerns about everything from the US presidential election to second-quarter earnings, economic growth and interest rates.
The Cboe Volatility Index, a gauge of options prices, surged the most in more than a year last week as stocks sank with growing calls for Joseph Biden to quit the presidential race. Now that he's done so and thrown US politics into uncharted territory, futures on the gauge have slipped after earlier climbing as much as 1.8% in Asian trading. October contracts, which measure swings around the vote, rose even more in Hong Kong.
Should Vice President Kamala Harris become the Democratic nominee, risk pricing is likely to look similar to what it was before Biden's debate against Donald Trump, according to Stuart Kaiser, head of strategy at Citigroup Global Markets.
«Policy continuity means she is the closest proxy for Biden among the alternatives so the volatility pricing will look very similar,» Kaiser said. «Perhaps with a bit more risk premium given the late change and recent events on the Trump/GOP side of things.»
After shunning protection against a selloff that never happened in the first half of the year, traders are now switching modes. Beyond politics, they're watching whether technology company earnings can support still-lofty valuations — Tesla Inc. and Google's parent Alphabet Inc. are reporting this week — while chatter on when the Federal Reserve will start to lower interest rates will remain in focus.
With increased chances of Trump winning
