Richard Croft's Top Picks: Covered calls in AMD, JPMorgan and RokuBNN Bloomberg MARKET OUTLOOK The S&P 500 Depositary Receipts (the SPY) has returned more than 16 per cent year-to-date. SPY set a new all-time high in early August and these performance numbers are not including dividends. Same story for the tech and growth-heavy iShares Nasdaq 100 ETF (the QQQ), which also set all-time highs in early August and at the time of writing was up over 21 per cent year-to-date, again not including dividends. In what’s been the most unloved bull market in history, we’re bearing witness to equity indexes climbing the proverbial wall of worry. Even now, analysts are stoking the fear gauge, pointing to heightened volatility, negative interest rates on a quarter of the world’s highest-rated debt and the potential for an inverted yield curve in the U.S., which by the way Donald Trump blames on Fed Chairman Jerome Powell. Listen to the talking heads on the financial networks leaves little doubt that volatility has returned. And while that is true to a point, recent readings on the CBOE Volatility Index (the VIX) are nowhere near what I would consider indicative of red line risk. At the time of writing, the VIX had settled back to its’ 200-day moving average around $16.75, which was well off recent highs of $26 in early August and $35 in December. So why the disconnect with investor fear and volatility metrics? In my mind, much of it reflects misguided assumptions about risk. In reality, the daily variability is noise. On-again, off-again trade talks with China, periodic tweet storms and conspiracy theories from Trump, mixed economic signals (concerns around the U.S. yield curve, lacklustre corporate sales, better-than-expected earnings empowered by financial engineering) wrapped up in the reality of an undeniable global slowdown, which has yet to impact the U.S. consumer. Noise tells us very little about value and even less about risk. What it does is cause investor sentiment to shift from bullish to bearish at the whim of short-term swings driven by obscure algorithms, none of which produces a positive outcome. Serious investors would be well served to step away from the weeds and examine longer-term trends and risk from a fresh perspective. For example, despite the hype around year-to-date performance, the S&P is about where it was in February 2018; between then and today, we’ve witnessed sharp sell-offs and record all-time highs, but what we have really seen is a market stuck in an expanding trading range. Similar results can be found in the price-weighted Dow and the Nasdaq 100. This price action is evidence of an unresolved tug-of-war between bulls and bears. An uncertain environment is challenging for all investors, but particularly so for those seeking lower-risk income options.
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