Some investors remain cautious, despite a thawing in trade tensions, developments surrounding Brexit and low volatility in markets , analysts said.
“There’s a signal out there that while we’re up at the highs, there’s still some kind of concern that we give back some of these gains,” said Ling Zhou, an equity derivatives strategist at Cowen. Some big investors have made similar trades. Bridgewater Associates LP paid more than $1 billion for an options trade that would profit if markets around the world fell by March, The Wall Street Journal reported in November. One potential source of volatility next year is the U.S. presidential election . Options markets have already been forecasting an increase in volatility in stock prices through late next year. Some investors have been concerned about the policy stances, especially toward businesses, that the final Democratic nominee will hold. “The biggest risk for 2020 is the U.S. presidential election,” wrote JPMorgan analysts in a Dec. 11 note. The firm’s analysts recommended portfolio hedges that expire in March, after Super Tuesday.
SHARE YOUR THOUGHTS How optimistic are you feeling about U.S. stocks? Are you making any changes come 2020? Join the conversation below. To be sure, some investors have also targeted bullish options that would pay out if stocks were to rise. Some of the demand for hedges could come from investors who are looking to protect strong gains they have booked this year, analysts said. And many stock analysts expect the record run to continue, buoyed by three interest-rate cuts by the Federal Reserve. JPMorgan and Goldman Sachs analysts project the S&P 500 to hit 3400 by the end of 2020, a 6.5% jump from Wednesday’s close. Bank of America analysts peg a target of 3300. To receive our Markets newsletter every morning in your inbox, click here . Write to Gunjan Banerji at [email protected] What Nervous Investors Are Buying to Feel Brave A buffered annuity protects against market declines. Until those declines get serious.
ILLUSTRATION: ALEX NABAUM By Jason Zweig Dec. 6, 2019 11:00 am ET One of Wall Street’s hottest investments lets you participate in most of the gains on stocks while sidestepping some of the losses . The most important word in that sentence is “some.” If you buy a so- called buffered annuity , your satisfaction will depend on how well you understand that you are protected against some losses, not against all. These variable annuities are a form of insurance linked to a market index. They trade away a portion of your upside in exchange for protection against some of the downside .
Investors bought $12.5 billion of these and other types of index-linked variable annuities in the first three quarters of 2019, up 63% over the same period last year , says Todd Giesing, director of annuity research at Limra Secure Retirement Institute. He estimates sales could exceed $20 billion in 2020.
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