Stocks Rallied Yesterday But Remain Expensive: Keep Your Hedges
Yesterday started cautiously, with stocks looking pricey and momentum soft. By midday and into the close, the market shifted clearly bullish, with broad sector gains leading the recovery. The price-to-earnings ratio remains higher than in roughly 77 of every 100 months since 2006. That alone warrants caution, even after a strong day. The 10-year Treasury yield holds at 5%, competing directly with stocks for your money. The VIX, Wall Street's fear gauge, fell to 17.5 by the close, down from 17.8 at the open. A VIX below 20 makes protective put options relatively cheap. Buy that protection now, before earnings season creates sharper moves. The Fear and Greed Index read 33 at midday, firmly in fear territory, even as prices climbed. That gap between rising prices and fearful sentiment is worth watching. Three sectors showed notable strength yesterday. JETS, the airline ETF, rose 2.2% but remains 21% below its 52-week high. Institutional rotation into beaten-down travel names drove the move. SMH, the semiconductor ETF, jumped 3%, its strongest single-day gain in the current watchlist cycle. AI chip demand is recovering as investors separate strong players from weak ones. XBI, the biotech ETF, gained 2.9%, the biggest daily move on the watchlist. It now sits only 9% below its 52-week high, a much shallower gap than energy or solar names. Each of these moves needs confirmation. A second consecutive close on rising volume matters more than a single strong day. The core message from yesterday: the rally was real, but so is the risk. Protective puts are still cheap. Use that window before earnings reports sharpen the stakes.
Source articles:
- Earnings Season Arrives with Stocks Priced for Good News ā Protect Accordingly
- Cheap Options, Pricey Stocks ā Fear Lingers Even as the Market Rallies
- Pricey Stocks Meet a 5% Treasury Yield ā Protect Before It Matters
The four reports behind this digest are free for 7 days with a card on file. Start a free trial.
Disclaimer: the information in this digest is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Market Pulse Daily may hold positions in securities mentioned.