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Zacks Investment Ideas feature highlights: SPY and QQQ
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For Immediate Release
Chicago, IL – August 8, 2024 – Today, Zacks Investment Ideas feature highlights S&P 500 Index ETF (SPY - Free Report) and Nasdaq 100 Index ETF (QQQ - Free Report) .
Market Bottom or More Downside & Volatility Ahead?
Equity Bears Finally Take Control
After trending nicely for months, U.S. stocks finally succumbed to selling pressure. The S&P 500 Index ETF is off its 52-week highs by about 7% after rebounding off Monday’s “baby out with bathwater” move lower. What’s behind the move? Political instability in the U.S., rising tensions in the Middle East, and most importantly, the “Yen Carry Trade.” Simply put, global investors have been borrowing Japanese Yen (where interest rates are low) and exchanging it for a high return in Australian dollars (where interest rates are high). However, interest rates changed over the past few weeks, and the trade unwound in a hurry, brutalizing the Japanese market and the global market as a whole.
Whatever the cause of the correction, one thing is clear: a correction was due. In fact, until recently, the S&P 500 Index had been abnormally calm and was on one of its longest streaks ever without a 2% down day. Finally, we have seen a much-needed correction. Though volatility is unlikely to subside in the short term, three market extremes suggest that a big intermediate bottom may be around the corner.
VIX has 3rd Highest Spike in 30 Years
The VIX, also known as the Volatility Index, serves as a market gauge indicating the market’s sentiment towards volatility within a given month. Often dubbed the “fear gauge” or “fear index,” it tends to rise during market phases and decline when markets are stable. Volatility tends to spike during tense moments and “black swan” events but during normal times will downtrend and remain low during normal times. For this reason, investors most often use the VIX to hedge against unexpected market corrections.
The best way to use the VIX is to spot market bottoms. Because market bottoms are often an event rather than a process (like tops), an extreme reading in the VIX is one of the best indications that the worst is likely over. Earlier this month, the VIX spiked above $60 to print its third-highest reading in the past 30 years! Though the Nasdaq 100 Index ETF is in correction territory, down 12%, the VIX tells us that investors are panicking like the market is in a full-blown bear market. Only the Great Financial Crisis of 2008 and the COVID-induced panic of 2020 saw higher readings. Each of these spikes led to long-term bottoms.
“Extreme Fear” Sets in
The CNN Fear and Greed Index is a composite tool that combines seven different market gauges to provide investors with a sentiment reading between “extreme fear” and “extreme greed.” Earlier this week, the indicator flashed its most fearful levels since October 2023, the last major intermediate bottom in the market. Historically, the reward-to-risk ratio is favorable when the crowd is bearish like it is now.
Seasonality
In the past two years, U.S. equities peaked in late July and bottomed in October. Will history repeat?
Bottom Line
It’s far too soon to assume that volatility will subside in the short-term. However, the market is flashing extremes that often coincide with long-term market bottoms.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: SPY and QQQ
For Immediate Release
Chicago, IL – August 8, 2024 – Today, Zacks Investment Ideas feature highlights S&P 500 Index ETF (SPY - Free Report) and Nasdaq 100 Index ETF (QQQ - Free Report) .
Market Bottom or More Downside & Volatility Ahead?
Equity Bears Finally Take Control
After trending nicely for months, U.S. stocks finally succumbed to selling pressure. The S&P 500 Index ETF is off its 52-week highs by about 7% after rebounding off Monday’s “baby out with bathwater” move lower. What’s behind the move? Political instability in the U.S., rising tensions in the Middle East, and most importantly, the “Yen Carry Trade.” Simply put, global investors have been borrowing Japanese Yen (where interest rates are low) and exchanging it for a high return in Australian dollars (where interest rates are high). However, interest rates changed over the past few weeks, and the trade unwound in a hurry, brutalizing the Japanese market and the global market as a whole.
Whatever the cause of the correction, one thing is clear: a correction was due. In fact, until recently, the S&P 500 Index had been abnormally calm and was on one of its longest streaks ever without a 2% down day. Finally, we have seen a much-needed correction. Though volatility is unlikely to subside in the short term, three market extremes suggest that a big intermediate bottom may be around the corner.
VIX has 3rd Highest Spike in 30 Years
The VIX, also known as the Volatility Index, serves as a market gauge indicating the market’s sentiment towards volatility within a given month. Often dubbed the “fear gauge” or “fear index,” it tends to rise during market phases and decline when markets are stable. Volatility tends to spike during tense moments and “black swan” events but during normal times will downtrend and remain low during normal times. For this reason, investors most often use the VIX to hedge against unexpected market corrections.
The best way to use the VIX is to spot market bottoms. Because market bottoms are often an event rather than a process (like tops), an extreme reading in the VIX is one of the best indications that the worst is likely over. Earlier this month, the VIX spiked above $60 to print its third-highest reading in the past 30 years! Though the Nasdaq 100 Index ETF is in correction territory, down 12%, the VIX tells us that investors are panicking like the market is in a full-blown bear market. Only the Great Financial Crisis of 2008 and the COVID-induced panic of 2020 saw higher readings. Each of these spikes led to long-term bottoms.
“Extreme Fear” Sets in
The CNN Fear and Greed Index is a composite tool that combines seven different market gauges to provide investors with a sentiment reading between “extreme fear” and “extreme greed.” Earlier this week, the indicator flashed its most fearful levels since October 2023, the last major intermediate bottom in the market. Historically, the reward-to-risk ratio is favorable when the crowd is bearish like it is now.
Seasonality
In the past two years, U.S. equities peaked in late July and bottomed in October. Will history repeat?
Bottom Line
It’s far too soon to assume that volatility will subside in the short-term. However, the market is flashing extremes that often coincide with long-term market bottoms.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks Investment Research
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.