Despite trading in positive territory for the most of the day, equities in the S&P 500 index saw higher volatility. Futures traders anticipate increased volatility in the S&P 500 index in the coming months. These signs are not encouraging for those anticipating that the market will continue its previously upward trajectory over the past several months.
The recent trade battle between the US and China, including fresh tariffs imposed by the Chinese government and President Trump's Twitter reaction last Friday, has increased market players' concerns about unforeseen developments. Examining the charts of the CBOE Volatility Index (VIX) and its exchange-traded funds (ETFs) with 30-day and 90-day forward-looking expirations, the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the iPath S&P 500 VIX MT Futures ETN (VXZ), respectively, reveals this.
Market Movements
When stocks close higher, the VIX often closes lower. While today's activity did not deviate from the norm, the VIX index spent the most of the day in positive territory until the last 10 minutes of trading, indicating that traders were hedging their bullish bets throughout the day. Furthermore, the pattern of the 90-day forward contract indicates that volatility will likely persist in the next weeks and months.
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Concerns About The Utility Sector Are Growing Among Investors.
Over the last three months, the utilities sector has produced the highest 90-day return. That is not a bullish indication. In fact, the transfer of investor money into the utilities sector over all others has repeatedly been connected with investor uneasiness and is frequently accompanied by market declines.
Stocks in this sector have a broad range of performance, therefore it's important to identify which ones demonstrating relative strength. Among the most strongly represented companies in the sector index, NextEra Energy, Inc., The Southern Company, Duke Energy Corporation (DUK), Consolidated Edison, Inc., and Dominion Energy, Inc. had over a 12% difference in performance over the previous three months. Southern Company and NextEra stock are the best performances. If the market remains cautious, these two will most likely continue to outperform the rest of the sector.
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Hewlett Packard Enterprise Weighs Down Ahead of Earnings
The Economist magazine released an article today online claiming that the trade war is already having an impact on consumer confidence. It's possible that trade war worries have impacted certain firms more than others. Take the example of Hewlett Packard Enterprise Company (HPE). This is not the HP division that manufactures popular printers and high-profit margin ink. Everything else is handled by this department. The two businesses parted a few years ago, and Hewlett Packard Enterprise stock has suffered ever since.
Over the past six months, Hewlett Packard Enterprise shares and the currency pair AUD/JPY have showed remarkable closeness in market activity. For whatever reason, Hewlett Packard Enterprise shares appear to be vulnerable to the challenges associated with that location. Undoubtedly, the trade war is dragging on this currency pair, and it may be indirectly harming Hewlett Packard Enterprise shares along the road. Investors are expected to be concerned about the company's quarterly earnings, which are due tomorrow.
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The Bottom Line
US stocks exhibit underlying volatility. This indicates that concerned investors are hedging their positions. Based on sector performance, they appear to be investing in utilities equities. The volatility is mainly impacted by events in the United States-China trade conflict. Some corporations' equities, such as Hewlett Packard Enterprise shares, are more heavily impacted by the trade war than others.
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