US stocks show mixed results as the market assesses better-than-expected initial jobless claims, suggesting steady employment. Meanwhile, new home sales were lagging, and flash PMI data showed varied results.
The European Central Bank decided to keep rates unchanged, with no clear future actions from Lagarde. On the previous day, the Dow industrial average nearly hit a record, closing within four points, but is down 0.38% today at 44,842, below the all-time high of 45,014.04.
Stock Performance Updates
The S&P index is slightly up by 0.15% or 9.45 points, standing at 6,368.12. It reached a new record yesterday and marked an intraday high of 6,374.63 today. The NASDAQ index shows a minor rise of 0.06%, at 21,032.10, achieving a new all-time intraday high of 21,107.
Alphabet shares increased by $1.94 or 1.0% to $192.05 after surpassing earnings expectations. However, the price dropped from an earlier high of $197.95. Since its April low, the price has risen by 35.20% but remains below its all-time high of $207.05 from January. The 50-hour moving average is at $186.44, suggesting potential downside risk if it dips below this level and then the 100-hour moving average at $182.12.
We see the mixed performance at record highs as a signal to protect our existing gains. With the CBOE Volatility Index (VIX) recently trading near multi-year lows around the 12-13 level, buying protective puts on broad market ETFs is relatively inexpensive. This strategy allows for continued upside participation while setting a clear floor for our portfolios.
Market Strategy Considerations
The contrast between solid employment figures and sluggish new home sales creates ambiguity for the Federal Reserve’s path. We are anticipating increased volatility around key data releases, like the upcoming Consumer Price Index report, which recently showed inflation remains a stubborn concern. Therefore, we are considering using straddles on market indices ahead of such events to profit from a significant price swing, regardless of direction.
The European Central Bank’s neutral stance adds another layer of global uncertainty. Her lack of forward guidance suggests we should remain cautious on positions with heavy European exposure, especially as recent ZEW economic sentiment surveys for the Eurozone showed persistent pessimism. Hedging with options on European-focused ETFs is a prudent measure against unexpected policy shifts from abroad.
Regarding individual names like Alphabet, the fade from post-earnings highs despite a strong report is a classic sign of profit-taking. We note that implied volatility has likely decreased significantly after the earnings announcement, making it an opportune time to sell premium. A bear call spread with a short strike above the recent high of $197.95 could capitalize on a potential sideways or downward drift toward the noted moving averages.
