Are we data dependent – or fake data?
For now, the stability of the stock market boils down to the outlook of investors recent economic data Which indicates that inflationary pressures may decline.
If you believe the data, the recent market gains are legitimate. The Fed may raise interest rates less aggressively, which will help lock in those gains and perhaps even create a meaningful basis for a rebound recovery.
Conversely, you might think that more information is needed other than a few bullish data points – and that market gains could be evidence of delusional thinking.
In contrast to a sharp drop in stocks, which scares most people, hardly anyone will complain about rising prices, even if the moves are very unusual. Last week’s 700-point gain in the Dow Jones Industrial Average seems like the sort of socially acceptable swing.
Rather than get into a high-minded debate, let’s focus on some “well-known personalities” who are hard to dismiss. They should give investors more reason to wait patiently for the market to reveal more of itself before reaching any firm conclusion about what 2023 holds.
Corporate earnings season have just begun. Investor expectations are harsh, and it’s hard to tell if sentiment aligns with reality. It could also be argued that extrapolating messages from earnings is more difficult in this round than it has been in the past.
For one thing, the current Fed leaders have become incredibly adept at weaponizing words and compiling meeting minutes to keep investors on edge. The Federal Reserve’s rate-setting committee concludes a two-day meeting on February 1st. There are high expectations that interest rates will rise another half percentage point.
At the same time, Goldman Sachs’ leaders, who arguably know more than most investors most of the time, aren’t exactly cheering. Even as the company’s analysts struggle to find good news about US companies, Goldman is the same lay off 3,200 employees. Many other large companies as well Reduce the number of headswhich few do when they are optimistic about the future.
It all adds up to one conclusion: You shouldn’t rush into action. Instead of buying this or that stock in anticipation of how investors will react to the Federal Reserve or the data torrent that will hit the market, consider taking a step back.
In the absence of a clear direction, we recently suggested that investors should consider Stock leasing in the options market by buying calls. The approach risks less money than buying linked stocks, and this has an advantage at the time of risk.
But there is another way too. If you have shares that you want to buy, consider trading Cash secured put options. The strategy involves holding the amount of money needed to buy the stock in your brokerage account and then selling the linked position.
(Stock ticker: MRNA) Trade as a way to monetize the possibility that we live in an era of viral pandemics that may require new medical treatments.
With the drugmaker around $187, the $170 in February could sell for about $6.50. If the stock is above the strike price at expiration, you will keep the sell premium. The biggest risk is that the stock falls below the put strike level, obliging investors to buy the stock at the strike price, or to adjust the position to avoid a forfeit.
Over the past 52 weeks, Moderna’s prices have ranged from $115.03 to $228.50.
Stephen M. Sears is President and Chief Operating Officer of Options Solutions, an asset management firm. Neither he nor the Company has a position in the options or underlying securities mentioned in this column.