While that may underscore appetite to hedge risk-on portfolios, the same cautiousness can be seen in stock derivatives.
Credit Suisse Group AG is seeing “a pick-up in hedging interest” for the S&P 500 Index ranging from one to three years. Demand for long-term protection has steepened the gauge’s term structure—which tracks volatility expectations for the future—to a nine-year high, according to the bank.
Other metrics, like skew and option demand on the Cboe Volatility Index, are also showing signs of fear beneath the surface. That’s despite the relative calm over the near-term “with Jackson Hole now expected to be a non-event and the summer lull in full swing,” according to Mandy Xu, chief equity derivatives strategist at the bank.
Meanwhile, an index of stay-at-home shares have also been beating stocks linked to the re-opening trade such as airlines and hotels.
For Christian Mueller-Glissmann, managing director of portfolio strategy and asset allocation at Goldman Sachs Group Inc., heady market gains in the first half were always going to be a hard act to follow in the second half. He’s optimistic about the recovery but sees risks from data disappointments to tighter policy along the way.
His advice is to counterbalance exposure to cyclical stocks with defensive safety plays.
“There is still a strong case for hedging,” Mueller-Glissmann said.
—With assistance from Vassilis Karamanis, Yakob Peterseil, Justina Lee and Ven Ram.
This article was provided by Bloomberg News.