The Leuthold Group’s Jim Paulsen predicts that an “just incredible economic momentum” will continue to push stocks higher the rest of the year.
“A lot of good things happening here as we enter the fourth quarter,” Paulsen told CNBC.
“The first one is just incredible economic momentum heading into this last quarter of the year,” he said.
“If you look at the consumer, they’re buying big ticket items at an amazing pace,” he said.
“Since 1988, and when consumer confidence has been above average while investor confidence is below, you’ve had 20% annualized returns in the S&P 500,” he said. “So, I think it’s going to prove to be another good quarter.”
His bottom line: Take advantage of Wall Street pessimism while you still can.
“I would broaden out your bets away from technology and new era. I’d still own that,” Paulsen said. “New leadership is going to be picked up by small caps, cyclicals, international stocks.”
Meanwhile, option traders are tempering bets that volatility will spike in the stock market immediately after the U.S. election, Bloomberg reported. Instead, they’re boosting wagers that price swings will stay elevated at least one month after the vote, according to strategists at Goldman Sachs Group Inc.
Options on the S&P 500 pointed to a 2.8% move on Nov. 4, the day after the presidential vote, down from an implied 3.2% swing seen in August, according to the bank’s analysis.
What’s also shifting is the curve in futures tied to the CBOE Volatility Index. Specifically, VIX’s November contracts, which refer to volatility during the month through Dec. 18, have jumped above October ones for the first time this year, a sign that traders are adding protections well beyond Election Day, said Goldman strategists led by Ben Snider.
“Option markets seem to have abandoned the view that volatility would rise strongly in the lead-up to the election, which had been priced in throughout much of 2020,” the strategists wrote in a note to clients. “Instead, currently markets are expecting volatility to jump at Election Day, and then remain high thereafter.”
The focus on extended volatility may mark a change in sentiment toward election risks. In early August, Binky Chadha, chief global strategist at Deutsche Bank, warned that options traders were too sanguine positioning for a steep post-election drop in the VIX.
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