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Additional points below regarding where our view is on the markets.
Medium to Long Term and Economy View
Bond yields and rotation trade
The US and Australian treasury yields have settled down in the past few weeks with commitments for no rate rises for 3 years from the RBA.
The growth and value rotation looks to have finished, with confidence coming back into growth stocks. Even though yields rose in the past 4 out of 5 days to a 14 month high in the US, NASDAQ 100 was up +2.2% in the same time period.
Yields are currently at 1.74%, which is low historically. From 2013 to 2019, yields were between 1.9% to 3%. During this time, the NASDAQ was up every year except for 2018, where it was down just 3.9%.
It is unlikely we will see a burst in the growth bubble with yields below historical levels at under 2%.
Options volatility is still elevated at 12 per cent, compared to the long term historical volatility of 10 per cent. However, this has come off from an average of 15 per cent.
Volatility is priced on known unknowns and there are not a lot of those at the moment.
Even though there are not a lot of upside catalysts, there are also not a lot of downside catalysts either.
We expect the market to continue to consolidate and trade sideways.
The WTO has raised growth projections to +8%, the highest since 2010.
The Biden administration has also announced a 2.25 trillion infrastructure spend as well as a hike in tax rates to pay for the spend.
Both of these are very positive for the market.
The market is currently rangebound between 6850 and 6550, with the 6750 level acting as a pivot point.
This has been the case for more than a month and with the drop in volatility, it looks set to continue.
To take advantage of a neutral market, selling put and/or call premium can generate market-beating returns and this has been the focus this year.
Our options income strategy has returned over 10% this first quarter, more than doubling the ASX200 return.
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This is general advice only. MF & Co Asset Management has not considered your personal financial needs, objectives or current situation. This information is not an offer, solicitation, or a recommendation for any financial product unless expressly stated. You should seek professional investment advice before making any investment decision.