What the market is worried about now is: not enough buying in the US stock market before the end of the year
In November, market risk events gathered, with investors hedging risks while worrying about missing out on bottom-fishing opportunities. Over the past week, traders bought over 100,000 contracts of S&P ETF call options for December, with each contract priced at a premium of over 5% above the market price. Analysis suggests that historically, when the market is overly hedged, performance tends to be positive, with the median stock market return exceeding 13% one year later
Risk events converge, will stock market volatility return? The market is preparing for a rebound in advance.
In the upcoming November, a series of risks such as the U.S. election, Euro-American interest rate decisions, Middle East situation, and U.S. Q3 earnings reports will be released intensively. Currently, the volatility of the U.S. asset market has collectively increased, and investors are paying more premiums for hedging needs.
At the same time, some investors are worried that if the market remains stable in November and they reduce their risk exposure for hedging needs, they may miss out on the next potential uptrend.
Some investors have already prepared for a year-end rebound. Data shows that in the past week, traders have bought over 100,000 contracts of S&P ETF call options for December, with each contract priced at $615, with a market premium of over 5%.
Wall Street News previously mentioned that a report from Goldman Sachs last week showed that after 8 consecutive weeks of selling, hedge funds massively bought U.S. stocks at the fastest pace in 4 months, with the speed of buying information technology stocks being the fastest in 5 months.
On the 21st, Carson Block, the founder of Muddy Waters Research known for short selling, said in an interview with Bloomberg TV:
"Maybe don't think too much, just buy the Mag7 with your eyes closed."
There are signs that the U.S. stock market still faces many positive factors.
Although the VIX volatility index and other indicators measuring option costs are still high, the actual volatility of 1-month S&P 500 index options has dropped by more than half since mid-August, approaching a three-month low, which may attract funds back into the market.
Furthermore, the Q3 earnings season for U.S. stocks has started well, with large bank stocks performing well; considering that U.S. companies will start buybacks in less than 2 weeks, it is expected to inject liquidity back into the market.
Historical data also shows that in election years, the median return of the S&P can exceed 7%, higher than the average of 5.2%.
Charlie McElligott, cross-asset strategist at Nomura Securities, commented:
"Due to multiple events occurring simultaneously, buyers are forced to excessively hedge risk management. Global investors are extremely focused on the 'worst-case scenario' left tail risk."
"From statistical data, when the market is excessively hedged, performance is usually good, with the median one-year stock market return exceeding 13%."