Last week, the markets were down. The Federal Reserve Bank Board of Governors, or “the Fed”, met last week as well. They signaled that they are a bit concerned about rising inflation and may raise rates sooner than originally planned, beginning as early as 2023 with two rate hikes.
And if you have children, you’re probably familiar with the witching hour – that time of day when you’re trying to get dinner on the table and everyone is having a meltdown. This past Friday was a quadruple witching the in the financial world.
While some folks have likened the market to witchcraft, in this case there are no supernatural forces at work. A quadruple witching occurs when there is a simultaneous expiration of single-stock options, single-stock futures, stock-index options and stock-futures. We are also looking at a rebalancing of some major index funds, as they adjust their portfolios to realign with their corresponding index.
So what are options? An option can be a put or a call, which is the right to buy or sell a stock at a specified price at a future date. The option itself is not a stock or a bond, but more of a bet on the future price of a stock or bond. In some cases, these are great hedging strategies. I may buy the right to sell my stock for a lower price than it is currently worth. The idea is that if the stock declines, I can still salvage something. Options trading can also be extremely risky, with some of the bets exposing you to theoretically unlimited losses.
In short we had major moves in the market over a short period of time. The Fed announced a change in their planned interest rate moves. Options and futures are expiring, which means stocks are potentially trading hands, and we’re seeing major sales and purchases from large index funds as they rebalance their portfolios. You may remember we say the market is rational in the long run. In the short run, we see these temporary impacts to stock prices. Your best bet is to stay the course on a long-term plan.
If you’ve been taking our action items to heart and tracking your spending, your action to take this week is to continue writing down your spending. But also have a heart-to-heart conversation with yourself, or your partner, about your values and goals. If you want a second home (or a first one), to retire early, to leave a legacy to children or the community, figure that out. What matters to you?
We have more financial information and resources on our website at covingtonalsina.com and on our Facebook page.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.