Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, highlighted in a recent client report that while the long-term outlook for equities remains positive, the near-term risk-reward profile is becoming less favorable.
The S&P 500, which reached an all-time high of 7,816.70 earlier this month, has since shown signs of stagnation as volatility, measured by the Cboe Volatility Index (VIX), dropped to its lowest level of the year at 14.1.
Rubner noted that the upcoming earnings calendar, a slowdown in corporate buybacks due to the impending blackout period, and a historical decline in retail trading activity during September contribute to a more cautious market sentiment. Additionally, the volatility risk premium for tech stocks has decreased following stronger-than-expected earnings, particularly from companies like NVIDIA.
With options prices at their lowest this year, Rubner suggests that downside protection is now relatively inexpensive, making it a compelling consideration for investors as they navigate a potentially turbulent month ahead