From Nasdaq: 2024-08-06 11:53:34

Wall Street’s latest turmoil has reignited faith in hedging strategies, with Treasuries rallying as stocks fell. The 60-day correlation between Treasuries and the S&P 500 moved closer to negative territory, signaling their effectiveness in mitigating stock market losses. Quality stocks with strong balance sheets have also shown resilience during the downturn.

A Dow Jones index tracking low-risk companies reached a yearly high, contrasting with the chaos of the Covid-19 market rout. UBS notes that strong bond performance has limited portfolio deleveraging, offering solace to traders. Investors may shift to late-cycle trades like quality and low volatility, looking beyond tech and AI sectors.

UBS strategists highlighted clients monetizing hedges and buying dips as equities advanced following the market rout. Classic tail-risk hedges in the options market performed effectively during the recent volatility spike. Brian O’Reilly of Mediolanum International Funds noted that cyclical sectors are performing well, indicating no imminent recession fears. Institutional investors may shift funds into quality and low-volatility trades as calm returns.



Read more at Nasdaq: Investors Turn to Defensive Plays as Market Turmoil Continues