The video discusses the current state of the stock market, focusing on the Nasdaq's recent performance and the potential impact of the US elections on global markets. Stephen Whiting, Citi's chief investment strategist and chief economist, provides insights into how market volatility could be utilized by investors in the lead-up to the election. He highlights how different election outcomes might affect global and US markets, emphasizing the potential opportunities presented by fluctuations in volatility.

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Key Vocabularies and Common Phrases:

1. frenzy [ˈfrɛnzi] - (noun) - A state of chaotic and wild activity or excitement. - Synonyms: (madness, hysteria, mania)

So you say by early next month, much of the world will be gripped in us election frenzy.

2. pessimism [ˈpɛsɪˌmɪzəm] - (noun) - A tendency to see the worst aspect of things or believe that the worst will happen. - Synonyms: (negativity, bleakness, cynicism)

If anything gets greatly exaggerated, if there's too much pessimism, too much optimism.

3. implied volatility [ɪmˌplaɪd vɑːləˈtɪləti] - (noun) - A measure of expected future volatility of a security's price, derived from options. - Synonyms: (expected volatility, projected volatility, predicted volatility)

You can think about the fact that the implied volatility on the s and P 500 is expected to be very high.

4. disaggregate [dɪsˈaɡrəˌɡeɪt] - (verb) - To separate a whole into its component parts. - Synonyms: (separate, divide, partition)

It's a little hard to disaggregate.

5. overweight [ˈoʊvərˌweɪt] - (adjective) - Having a larger proportion than the average or normal in a portfolio. - Synonyms: (excess weight, surplus, heavy allocation)

We came into this year overweight.

6. basis points [ˈbeɪsɪs pɔɪnts] - (noun) - A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is 1/100th of a percent. - Synonyms: (percentage points, value increment, rate increment)

They've ranged nearly 30 basis points over the course of a day.

7. suitable investors [ˈsuːtəbl ɪnˈvɛstərz] - (noun phrase) - Investors who meet certain criteria and are deemed appropriate for specific investment strategies or products. - Synonyms: (qualified investors, eligible backers, fitting financiers)

Well, again, for suitable investors.

8. hedging [ˈhɛdʒɪŋ] - (noun) - The practice of making financial transactions to reduce the risk of adverse price movements in an asset. - Synonyms: (covering, securing, insuring)

But it's expected to fall quickly after hedging.

9. volatility [ˌvɒləˈtɪləti] - (noun) - The degree of variation of a trading price series over time, typically measured by the standard deviation of returns. - Synonyms: (instability, fluctuations, variability)

And then the other side of it is just using that volatility as an income source.

10. non-us equities [nɑn juˈɛs ˈɛkwɪtiz] - (noun phrase) - Shares of companies that are based outside of the United States. - Synonyms: (foreign stocks, international shares, overseas equities)

We've taken somewhat less risk in global equities, in non us equities.

Prepare to leverage volatility on election night - Citi strategist

The tech heavy Nasdaq rising for the fifth day in a row here. For more of the latest moves, let's not bring in Stephen Whiting, Citi wealth chief investment strategist and chief economist. Steven, it's good to see you. So you say by early next month, much of the world will be gripped in us election frenzy. And I don't disagree with you, Stephen, but what does that mean for viewers right now who are listening? What's it mean for investors? Well, I would look at it this way. In the last two us election nights, same cast of characters. With the absence of Joe Biden, the range on us equities over the election evening was about six percentage points us yields. You report on up a couple basis points. They've ranged nearly 30 basis points over the course of a day.

So there's a time in which markets are going to try to very, very quickly absorb the implications of what us policies will be, as they guessed and perhaps said who was elected president, what Congress that person will have. So this is the type of thing that you'll see. And what we really would be looking for as true long term investors, and I would imagine, again, many of your audience is, if anything, gets greatly exaggerated, if there's too much pessimism, too much optimism, that's the sort of thing that you can take advantage of in the aftermath of election results. There are other ways to think about this, but I would also just emphasize that global markets, markets, international equity markets, may move even more than the US does because of the impact of us policies are very different between the two candidates.

And so, Steve, when investors are trying to figure out how to take advantage of this, one of the things that you recommend is sort of going long volatility, I guess, at least right around the event here. What's sort of the best way for people to think about that and do that? Well, again, for suitable investors, you can think about the fact that the implied volatility on the s and P 500 is expected to be very high for that one night I mentioned, but it's expected to fall quickly after hedging. Costs are pretty low now for a period where the s and P 500 is near a record. Of course, we also have record corporate profit levels at the same time. So it's not that it really lacks an anchor. And then the other side of it is just using that volatility as an income source. If volatility surges, it's usually not able to hold that level for a long period of time. So especially if volatility is pushed out over a longer period in terms of the options market, then what happens is that there are techniques, again, for suitable investors to take advantage of that and use that for entry point management, use it as a source of income.

You know, Steve, we've talked to a lot of people who have said, ok, if it goes this way, you can do this. If it goes that way, you can go that, you can do that. You know, when we are obviously following the headlines that might affect the markets closely. One of the latest today, a report in the New York Times that Jamie Timon was sort of a closet supporter of Kamala Harris, and even, you know, his name has been floated as treasury secretary before. This was something else that was mentioned in that report, something like that. Does that affect markets? If it happened, could it affect markets? How do you think about those kinds of headlines? It's a little hard to disaggregate. We just had, for example, strong employment report, a couple mild positive surprises on inflation, and you know what, longer term inflation expectations have risen 30 basis points. But it's also been, as various polls and indicators have seen, Donald Trump's prospects improve in his election probability. So it could be really very difficult, again, for investors to rely on this information.

How have polls really done for us? And that's why you get these big election night volatility spikes. And again, I've got to stand away from that. We've taken somewhat less risk in global equities, in non us equities, where we have a bit of an underweight and we have a significant overweight and us equity themes, partly on the risk of what might happen with tariffs and other policies that are possible. But we'll take a look at that after the election result. If those things are, if we have some relief from all of those concerns, then it's possible again that we could shift those allocations. I think, again relying on the polls, thinking that we can out bet the market on, you know, who will win. You know, that's not a risk that we want to take.

Stephen, let me get your take on this earnings season. You know, we heard from the big banks generally solid. Now big tech is on deck. Interesting. Get your thoughts. What do you make of this earnings season so far, and what do you forecast, even for corporate profit growth ahead? Well, it's broadening gains across industries. We came into this year overweight. The S and P P 500 equal weight overweight growth stocks and mid and small caps, specifically. Again, it doesn't mean every small cap. It's not about leverage. Low quality companies. But the idea that we would have more industries that could grow their earnings is what we've counted on. And now you could take a look at the S and P 500 equal weight index and its return over the last twelve months.

It's about 35% now. Are there some industries that have improved more? Sure. But what we saw in the second quarter is that nine out of eleven sectors posted EPS gains. We might be ten out of eleven by the end of this year. And it's not that we're going to have a 40% EPS gain or something like that, as if we were coming right out of a recession. We're not. But again, broader gains across more industries, because 2023 was a lousy year for many companies, again, excluding the Mag seven, it was a -7% year for S and P 500 Epsilon. So that is allowing us, again to see so many industries that have in fact been affected by monetary tightening in 2022 and early 2023. We think we can emerge from that and into the coming year.

Again, it's not necessarily double digit gains for the broad index EPS, but it's a lot more widespread gains. And in fact, under some circumstances, it might be a little bit more global. Steve, great to see you. Thanks a lot for joining us. Thank you.

Economics, Investment, Technology, Us Elections, Market Volatility, Corporate Profits, Yahoo Finance