Risk Events Are Everywhere You Look This Week

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessRisk Events Are Everywhere You Look This WeekThoughts of a summer lull must be far from the minds of equity investors buckling their seatbelts for a bumpy ride through this week’s long list of risk events.Author of the article: You can save this article by registering for free here. Or sign-in if you have an account.8wm6wpwovy90u(hvz{gh}rkq_media_dl_9.png Bloomberg(Bloomberg) — Thoughts of a summer lull must be far from the minds of equity investors buckling their seatbelts for a bumpy ride through this week’s long list of risk events.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountVolatility is already stirring thanks to geopolitics, but earnings and economic headlines are capable of triggering bigger swings. Microsoft Corp. and Meta Platforms Inc. report Wednesday, followed by Apple Inc. and Amazon.com Inc. on Thursday. Interest-rate decisions are due from the Federal Reserve and the Bank of England, while European inflation and Chinese PMIs are among highlights in the data deluge.“All of it comes against the backdrop of an oil market that briefly traded above $100 Brent, elevated global bond yields, and a market still trying to digest two consecutive weeks of equity weakness,” said Goldman Sachs Group Inc. partner Richard Privorotsky. He views VIX calls as good tail-risk hedges. “Think we remain in more of a chop, implied correlation still near lowest level in last couple decades and dispersion is suppressing market moves.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe case for loading up on VIX calls is backed by history. In US midterm election years, volatility typically increases at the index level in August and keeps rising until October, according to data from Goldman. More broadly, single-stock volatility remains elevated and dispersion of returns has been the name of the game this year. These extreme readings now look more likely to reverse rather than extend, adding to the potential for turbulence. Technicals might help explain the path ahead. The MSCI World Index seems restrained by a ceiling around the 4,885 points level. Meanwhile, elevated positioning among systematic investors is in the 70th percentile and could prove vulnerable “if volatility picks up or if equities break out of the range to the downside,” according to Deutsche Bank AG strategists including Parag Thatte.Looking at other positioning data, last week was another period of meaningful de-grossing, with discretionary investors cutting exposure back to early-April lows at the 17th percentile, according to the Deutsche Bank strategists. That’s well below levels implied by earnings and macro-economic growth. As for the rotation out of large-cap technology stocks, this is about three quarters of the way through, after positioning fell from elevated levels, they added. In the megacaps earnings space, all eyes are on the Magnificent Seven. The cohort has been funding the AI beneficiary and semiconductor trade for months now, but didn’t benefit from recent profit-taking in those stocks. Investors still look reluctant to re-engage, especially with worries over capex commitments reinforced by Alphabet Inc.’s announcement last week.That may be so, but the Mag Seven are now trading at historically depressed valuations. Their forward price-to-earnings ratio has fallen to near the bottom of a seven year-range, both on an absolute and a relative basis. This may offer an opportunity to buy the dip, as the de-rating was driven by a drop in prices, as well as rising earnings estimates. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.While worries over massive AI investment are a market focus, others are confident that at least some hyperscalers will emerge as big winners. That’s the case for Morgan Stanley analysts including Stephen Byrd and Michelle Weaver, who are bullish on the “Intelligence Superhighway.” They recommend holding shares in fuel-cell and energy storage companies, compute manufacturing ecosystem firms, as well as hyperscalers with the capability of achieving scale benefits and driving an attractive return on investment on their AI capex. They cite Meta, Alphabet, Microsoft and Amazon. “Given the recent market pullback affecting a range of AI Infrastructure stocks, we believe this point in time represents an unusually attractive buying opportunity,” the Morgan Stanley team wrote. “We are fundamentally bullish on the rate of improvement in AI capabilities, the benefits of AI adoption, and associated capex.”Away from technology earnings, the major threat to market calm this week comes from central banks. The swap market is fully pricing a rate hike from the Fed in September, and potentially a second one by the end of the year. Any decent move in this pricing is likely to affect equities, so comments from Fed Chair Kevin Warsh will be heavily scrutinized.Further de-esclation in the Middle East that spurs drops in the oil price will likely help the central bank with its task, and Warsh’s objection to forward guidance means rate-hike expectations will become more data-dependent. “For equities, the pace of the move in rates matters more than the absolute level,” according to JPMorgan Chase & Co.’s Market Intelligence desk. They note that last week, 10-year Treasury yields breached the May high of 4.67%, with the next level to watch the January 2025 high of 4.79%. “If upcoming data or Fed rhetoric supports a further move higher in yields above 4.8%, we should start to see more pressure on rate-sensitive stocks.”Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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