What a wild week on Wall Street. Many milestones were reached during the past 5 days dominated by raucous trading: Things we hadn’t seen since the Financial Crisis of 2008. First there was panic causing an 1100 point DOW decline early Monday which was the largest move on the DOW since 2008. The ensuing 2-day rally Wednesday and Thursday was the best 2-day gain since 2009. The 10% surge in crude yesterday was the largest one-day move since March of 2009. You get the point. With all that happened this week, stocks actually closed Friday with gains. Imagine that. Someone who was out of the country and off the grid for the week could return to check their account today versus last Friday and would think nothing happened… Indeed. This week feels like it lasted a month.
Believing this bounce will be short-lived, we sprung into action this week by selling covered calls on solid investment-grade stocks we own: stocks we want to own for years to come. This action is based on our analysis that the relief rally will stall-out causing the option premium prices to fall. We will likely close them out early, banking gains, and then look to do it again. This is a good example of how we trade around our positions and play the Market volatility, by enhancing client returns, while simultaneously reducing risk. That is the ultimate goal for any investor: increased returns with lower risk.
The Federal Reserve annual economic policy conference kicked off late last night in Jackson Hole, Wyoming, and will run through Saturday. With Fed Chair Janet Yellen skipping it, the Market will be watching for signals about the likely timing of an interest rate increase from Vice Chairman Stanley Fischer. We still think a September rate hike is possible. Speakers are also expected to touch upon China’s devalued currency, the collapse in oil prices and recent global market turmoil, although the official topic of this year’s conference is “Inflation Dynamics and Monetary Policy.” The Fed is still very key to the future of this Market, for both stocks and bonds.
We are on it! Enjoy this balmy Summer weekend. We’ll be back dark and early Monday morning. Please hit the reply button and let us learn what you are thinking!
Mike Frazier
