Stocks: Do We Have a Bloodbath Next Week?

[Recyclersteve]

It is disappointing to me that the S&P and NASDAQ didn’t both bounce at least 1/2% on Friday. Now people have all weekend to stew about how bad things will be next week.

I fully expect probably 2 or more analysts to come out before Monday morning either upgrading tech or basically telling people not to worry. I can see an initial bounce, but expect it will merely be a bounce in a downtrend.

For anyone who trades options, I expect the premiums (implied volatility) to be really high. Options that are normally 50c could be $1-2. I’m looking to sell options (covered calls and/or naked options) to collect the juicy premium. I don’t want to buy options when they are super expensive.

[Lemon Thrower]

sorry if I'm dense, but what has you worried Steve? Armed conflicts? Fed?

[pmbug]

Folks are finally starting to accept that the Fed is trapped and will not be cutting rates. It doesn't bode well for stocks.

Breaking: Wall Street execs following @WhiteHouse economic policy say @JoeBiden Administration plans to ramp up spending even more as @federalreserve
postpones rate cuts; @SecYellen likely to continue to roll over short term debt to prevent a spike in 10-year yields that caused stock to tank last year more now

https://twitter.com/CGasparino/status/1 ... 7983910920

Interest on the Federal debt is going to start going parabolic if that holds up.

Israel-Iran war escalation could end up closing the Strait of Hormuz and disrupt the global oil trade. It could drive oil higher which puts the world on the edge of a global recession despite what Pierre-Olivier Gourinchas says.

...
"When we do the risk assessment around that baseline, the chances that we would have something like a global recession is fairly minimal. At this point, it will take a lot to derail this economy. So there has been tremendous resilience in terms of growth prospects," Pierre-Olivier Gourinchas, economic counsellor and director of the research department at the IMF, told CNBC's Karen Tso on Tuesday at the group's meeting in New York.
...

https://www.cnbc.com/2024/04/17/risk-of ... -says.html

Seems to me that there are significant risks right now and it behooves folks to get defensive (ie. buy gold), but I'm a simple guy.

[Recyclersteve]

sorry if I'm dense, but what has you worried Steve? Armed conflicts? Fed?

Nvidia (NVDA) is one of the Magnificent 7. It is by far the best performing member. It was down over 10% on Friday with no real news. It was down steadily all day with no significant rally. Worst single day in about 4 years.

And Super Micro (SMCI), the dandy newcomer just added to the S&P500 was down a whopping 23%. Those would be bad YEARS for both and it happened in just one day- a Friday no less.

[silverflake]

As usual Steve, thanks for the heads up. I will be looking at those options premiums. I own a good amount of KO and MCD (the unhealthy duo) and I sell calls off them a couple times a year when time is right (and premiums respectable).

Keep up the info Steve. I can't speak for everyone here but I always look forward to anything you have to say. And yes, i will do my own due diligence!

Keep it coming.

[Lemon Thrower]

I own a covered call fund call JEPI. It holds 135 dividend stocks. It has a beta of 0.59 which means it has only 59% of the volatility of the SP500. It passes through dividends paid by those 135 stocks, but it also sells covered calls on the SP500. If option premiums rise, this is good for JEPI. Of course, one gets this safer exposure to the stock market by giving up some of the upside - I doubt JEPI owns any of the formerly magnificient 7 stocks which is just fine by me. Slow and steady wins the race.

[Lemon Thrower]

Folks are finally starting to accept that the Fed is trapped and will not be cutting rates.

I'll agree that the Fed is trapped. Its actually insolvent and lost money last year, even with special accounting rules that apply only to the Fed. Those mounting losses show up on the right hand side of the balance sheet.

I think a lot of regular banks are screwed but this is a left hand side of the balance sheet problem. Their bond investments are generally underwater and they don't have to recognize the built in losses provided they hold to maturity (SVB for some reason moved them to available for sale and had to recognize huge losses immediately). As those bonds mature they can reinvest in higher paying bonds.

Their fixed rate loans, such as CRE, is a different problem. The tenants can't afford the balloon payments to payoff the loans, and they can't afford to rollover the loans at the new, higher rates. The value of the collateral has fallen by more than half so the banks can't afford to foreclose.