Calm Markets, Stretched Valuations, and Cheap Protection: Act Before Earnings Do
Yesterday's market looked quiet on the surface. That quiet was the warning. The VIX, Wall Street's fear gauge, ended the day at 15.2, well below its one-year average of 18.1. Low fear means protective options are cheap right now. Buy them before earnings season changes that. Stock valuations remain elevated, higher than roughly 79 out of every 100 months since 2006. The 10-year Treasury yield holds at 5.2%, competing directly with stocks for your money. Sentiment shifted during the day. The morning opened cautiously, with the call to keep trimming positions. By midday, energy rose to the top sector, up 1.5%, lifting confidence slightly. By the close, the posture held: trimmed book, hedge with puts, watch energy selectively. Energy stocks were the standout. XOP gained 1.5% and sits only 3.3% below its 52-week high. A Houthi strike on Saudi airports added a live supply-risk catalyst. A close above the 52-week high on rising volume would confirm a breakout. An escalation into actual supply disruption could push oil beyond what refiners absorb. Natural gas producers also moved. FCG rose 1.2% and sits 8.3% below its 52-week high. The Russia-Ukraine ceasefire deal stalled yesterday, removing a key supply-relief risk. European winter demand is building. Watch for a sustained close above 31 as buyer confirmation. Regional banks added 0.8%. KRE sits 11.2% below its 52-week high. The yield curve is normal, with the 10-year yield sitting 0.5 points above the 2-year, which supports bank lending margins. Two consecutive closes above 71 would confirm the move. The bottom line: protection is cheap, valuations are not. Use the calm.
Source articles:
- Earnings Season Heats Up Into a Market That Is Calm, Pricey, and Exposed
- Fear Is Asleep, Valuations Are Not: Trim and Hedge Before Earnings Wake the Market
- Yields at 5.2%, Valuations Stretched: Cheap Puts Are Your Best Friend This Week
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