MW The market's wobbling. Here are BlackRock's shields for the biggest risks.
By Steve Goldstein
Gold, bitcoin and buffer ETFs could be safety nets for a volatile stock market, investment giant says
The stock market is starting to wobble. After Tuesday's 1.1% decline, the post-election gains in the S&P 500 SPX are down to just 2%, according to Dow Jones Market Data.
The latest economic data show falling hiring and quitting rates and a surge in perceived price rises from service-sector purchasing managers. President-elect Donald Trump's news conference, in turn, did nothing to change the perception that his leadership will be at the very least unpredictable for the next four years.
Like many investment firms, asset-management giant BlackRock has been saying for awhile now that U.S. stocks will continue to do well in 2025, despite the uncertainty.
But maybe of more use are the hedges the company with $11 trillion in assets has articulated for a number of concerns that are currently weighing on investors' minds, according to strategists led by Gargi Chaudhuri, the firm's chief investment and portfolio strategist for the Americas.
For example, if the U.S. economy grows more slowly than expected, equity market neutral funds that have short as well as long positions could offset that impact, as the firm specifically named BlackRock Global Equity Market Neutral Fund BDMIX, BlackRock Tactical Opportunities Fund PBAIX and the BlackRock Systematic Multi-Strategy Fund BIMBX. (A rival offering is the Vanguard Market Neutral Fund VMNFX.)
If wage inflation continues - perhaps due to Trump trying to slow immigration - the firm recommends iShares 0-5 Year TIPS Bond ETF STIP and the iShares Advantage Large Cap Income ETF BALI, though they say allocations to high-growth U.S. technology firms also could hedge inflation if declining immigration is met with greater automation. (The Vanguard Short-Term Inflation-Protected Securities Index Fund VTIP and the Schwab U.S. TIPs ETF SCHP would be non-BlackRock alternatives for a inflation-protected bond fund.)
For a shield against import tariffs, the iShares U.S. Aerospace & Defense fund ITA has a high correlation with the trade policy uncertainty index since 2006, meaning it rallies during times of rising trade uncertainty. Or one could look to the iShares Manufacturing ETF MADE for companies that should benefit from protection against foreign competitors.
For rising fiscal deficits, the firm says bitcoin and gold can benefit. "Scarcity serves as a key component of value creation in a world of possible currency debasement," their strategists say.
But maybe an investor would just like protection regardless of the source of the risk. There, BlackRock identifies buffer funds - they recommend the iShares Large Cap Moderate Buffer ETF IVVM and the iShares Large Cap Deep Buffer ETFIVVB, and rival buffer ETFs include the FT Vest Laddered Deep Buffer ETF BUFD and the Innovator U.S. Equity Power Buffer ETF PFEB.
Buffer ETFs give up upside potential to provide more downside protection. Those products probably don't make sense for a long-term investor and are easily front run, according to options experts, but may make sense in the short term for those who don't want to wade into the options market directly.
The market
U.S. stock index futures (ES00) (NQ00) were stronger early Wednesday as Treasury yields BX:TMUBMUSD10Y were stable. Oil (CL00)was trading around $75 per barrel.
Key asset performance Last 5d 1m YTD 1y S&P 500 5909.03 0.47% -2.09% 0.47% 24.23% Nasdaq Composite 19,489.68 0.93% -1.00% 0.93% 31.18% 10-year Treasury 4.692 11.60 41.70 11.60 65.80 Gold 2666.1 1.02% -3.18% 1.02% 31.35% Oil 74.38 3.49% 5.68% 3.49% 4.29% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
A raging wildfire burned homes in the Los Angeles area, impacting stars like James Woods and Steve Guttenberg.
Ahead of Thursday's observance of President Jimmy Carter's funeral, the U.S. economics calendar includes the December ADP private-sector employment report, weekly jobless claims, and at 2 p.m., the minutes from the last Federal Reserve meeting.
There's also a $22 billion auction of 30-year notes.
FanDuel owner Flutter Entertainment $(FLUT)$ cut its revenue outlook because too many NFL favorites won in November and December.
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The chart
Now that the 10-year yield has firmly breached the 4.5% level, the market is shifting to a 'good news is bad news' environment again, according to Bank of America strategists led by Ohsung Kwon . Over the past two years, the correlation between the S&P 500 and the 10-year yield has closely tracked the direction of the 10-year, they say, and the 4% to 4.25% range has been the level where correlations flipped.
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-Steve Goldstein
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(END) Dow Jones Newswires
January 08, 2025 06:34 ET (11:34 GMT)
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