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A global strategy chief shares 3 ways investors can navigate increased stock-market volatility in the coming months

A global strategy chief shares 3 ways investors can navigate increased stock-market volatility in the coming months

trader Gregory Rowe
NYSE trader Gregory Rowe works on the floor of the New York Stock Exchange at the end of the trading day.


  • Willem Sels, HSBC Private Banking global chief market strategist, expects volatility to pick up in the next few months due to the US election and a renewed uptick of COVID-19 cases. 
  • In a Tuesday email he shared three strategies for how investors can manage the stock market volatility ahead. 
  • One of his strategies is to avoid the lure of low-quality stocks just because they’re cheap.  Instead, Sels said to seek out companies with strong balance sheets and long-term growth potential.

The upcoming US election and an uptick in cases of COVID-19 are leading to increased volatility and causing some investors to step back. Willem Sels, HSBC Private Banking global chief market strategist, expects volatility to pick up in the next few months, but said investors should remain in the market. In a Tuesday email he shared three strategies for investors to manage what’s ahead. 

1. Focus on quality assets

“What the September correction has shown is that, when valuations are high, it is unwise to go into lower quality assets just because they are cheaper,” Sels said. Investors should seek out companies with strong balance sheets as COVID-19 will continue to weigh on cash flows for longer than expected. For long-term growth, Sels is watching companies related to climate change, health technology, 5G, and the online economy.

2. Look for areas with promising growth

Sels also said he’s looking for areas with “promising growth” in the short and long term. “The US economic outlook currently looks better than in Europe, and data in China and Korea is more positive than in other EM countries,” he added.

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Stock-market bets against Nasdaq index hit decade peak

Stock-market bets against Nasdaq index hit decade peak

The technology-laden Nasdaq Composite Index stands less than 2% from its early September peak, as of late Tuesday trade, reflecting its resurgence from its jaunt into correction territory less than a month ago.

However, rather than betting on continued progress in the popular benchmark that has led the run-up from coronavirus-induced lows, investors are mounting bets that the benchmark continues to be overpriced and faces a fresh collapse in the near-term.

“Somebody, somewhere, still wants to bet against this market,” writes Jason Goepfert, head of SentimenTrader and founder of independent investment research firm Sundial Capital Research, in a Tuesday research note.

Goepfert writes that so-called short interest, or the total number of shares of a particular stock or fund that have been sold short by investors, but haven’t yet been covered or closed out, on stocks trading on the Nasdaq Composite
COMP,
-0.10%

rose in the last two weeks of September to around the highest level in 10 years, at around 9.7 billion shares (see chart below expressed as a percentage below a chart of the Nasdaq Composite’s absolute value).


Jason Goepfert at SentimenTrader

Of note, Goepfert said some investors view rising short interest as a contrarian sign, one that may signal a bullish trend for the benchmark market, since it also reflects a potential snapback trade for stocks if bearish investors suddenly are forced to unwind their short bets and buyback stocks they have borrowed in their short bets.

However, the SentimenTrader analyst says investors willing to dismiss the current rise in short-term interest, or view it as a potential cause for buying and not caution, do so at their own peril.

As the stock market has surged higher in the aftermath of its swoon back in March, amid the peak of selling precipitated by worries about the economic

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