According to Oktay Kavrak of Leverage Shares, value stocks and those with high dividend yields may be more attractive, but general market conditions could remain choppy until the conflict in Ukraine is closer to a conclusion.
Kavrak, a product strategist at the firm, has developed short and leveraged exchange-traded products for European Union and UK exchanges, including products that help traders short ETFs from Ark Invest by Cathie Wood.
Via email, we asked Kavrak a few questions about the state of the current market and its direction.
His answers could provide ideas for more aggressive clients, as well as reasons for more cautious investors to consider paying annuities with strong guarantees of value.
THINKADVISOR: What do you think about the direction volatility will take in Q3 and Q4?
OKTAY KAVRAK: Until we receive both indications that the conflict in Ukraine is closer to a conclusion and more clarity from central banks, I don’t expect volatility to subside for the rest of 2022.
The perfect storm of rising prices, supply chain issues and geopolitical turmoil makes the possibility of a soft landing from the Fed all the more difficult.
All eyes are on the Fed: excessive tightening will send the economy into a downward spiral, into recession, while insufficient rate hikes will likely lead to continued high inflation.
I expect volatility to remain high in the second half as markets remain choppy in anticipation of policy decisions.
What are the greatest risks and opportunities for investors in this environment?
The biggest tail risk remains the hawkish stance of central banks in the face of high inflation.
Following the largest rate hike by the Fed in nearly 30 years, there is a consensus that we will see another 50 to 75 base hike in July.
Although inflation has probably peaked (or is about to peak), global growth optimism is waning. More aggressive bulls attempting to cut the former are top of mind for investors.
Unfortunately, the Fed cannot control supply-demand imbalances caused by supply chain issues with policy decisions.
On the other hand, consumer sentiment hitting record highs in June is actually a good sign for the S&P 500: stocks tend to outperform around 25% in the 12 months after a ‘sentiment bottom’. .
I see plenty of opportunities to buy downed mega-cap tech stocks, which saw their valuations drop significantly in the first half of the year.
Also, I still think there is room to run in the long commodity trade.
Energy has been the best performing sector in 2021 and so far in 2022, and I don’t expect that to change drastically with the ongoing geopolitical conflict in Ukraine.
Entry points are important – and many popular stocks are more attractive in today’s market.