Time for Some Hedging?

The economic calendar is extensive with a focus on housing and consumer behavior. Expect market participants to look for any sign that the economic recovery is stalling in the face of the COVID-19 surge and the slower pace of reopening. Unemployment claims data remains an especially important indicator. Second quarter earnings reports, beginning with the big banks, will also provide a closely watched perspective on the economy.

With so many worried about an economic stall it is natural to ask:

Is it time to do some hedging?

This week’s image is from Sportpunter.com, which takes a British, quantitative, and sports perspective on the hedging question. The image suggests that it is not as easy as it might seem.

Last Week Recap

In my last installment of WTWA, I drew upon the wisdom of Satchel Paige who counseled, “Don’t look back; something might be gaining on you.” Markets have reflected the perceptions of those focused on the most recent changes. The forward-looking quality depends on the accuracy of these perceptions. I did not really expect major media to follow this theme, since no one else is trying to measure and explain the linkages between the pandemic, the economy, earnings, and stock prices. I have been following my 2020 resolution of asking myself each week, “What is the most important thing for investors to think about?” I was delighted to see comments (and I read them all) from some of my most astute readers underscoring the importance of this approach.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Investing.com’s version. This is just the static chart, but a visit to the post will enable you to explore the many news callouts and much more.

The market once again ignored record numbers of new COVID-19 cases to post a strong week. The market gained 1.8% with a trading range of only 2.3%. My weekly indicator snapshot monitors the actual volatility as well as the VIX (see below).

The weekly sector chart shows the source of the gains.

The “recovery” trade is doing well, reinforcing the market verdict on the coronavirus threat. Industrials, financials energy and materials are all part of that group. Defensive sectors like utilities, consumer, and health are weakening ang lagging.


Keeping in mind that each decade is different, this summary of the last ten years tells an interesting story. (Visual Capitalist Advisor Channel).