Chris Murphy, co-head of derivatives strategy at Susquehanna, suggests that investors should consider enhancing their hedging as the summer approaches due to a combination of stretched momentum in the S&P 500 and rising macroeconomic uncertainties. He highlights that the index is becoming increasingly susceptible to a potential correlation shock, especially after a strong seasonal performance.
Murphy points out that the tech sector, which has driven much of the S&P 500's recent gains, is experiencing record-high momentum exposure, particularly in large-cap tech stocks like Nvidia and Broadcom. However, he warns that such momentum surges are not sustainable indefinitely.
Additionally, he notes that persistently high oil prices could pressure consumer sentiment, and a declining savings rate may indicate economic fragility. Therefore, he recommends that investors who have benefited from the recent AI and tech-led rally should consider adding protective measures while the market remains stable, rather than waiting for increased volatility