David Kostin, a prominent figure in financial media, is retiring from Goldman Sachs. He made headlines last year by predicting 3% annual returns for the S&P 500 over the next decade, which translates to only 1% in real terms. So far, this prediction has faced challenges, despite the S&P 500 rising nearly 13% this year. Achieving the last decade’s average of 13% returns may be tough due to high valuations and de-globalization.

Ben Snider Appointed New Chief

Ben Snider has been named the new Chief US Equity Strategist at Goldman Sachs. Despite a long-term bearish outlook, the market continues to climb, with the S&P 500 approaching 5,700 by 2025, reflecting a 13% gain. This rally occurs even with ongoing concerns about high valuations and slowing global growth. The S&P 500’s forward price-to-earnings ratio is currently at 22, much higher than the historical average of 17. As the market rises, the VIX is around a low of 14, indicating a strong sense of complacency among investors. Historically, long periods of low volatility often lead to market shocks, making it a good time to consider buying inexpensive protection. We suggest purchasing out-of-the-money puts on major indices like the SPX or QQQ for October expiration as a smart hedge against sudden drops.

Federal Reserve Holds Rates Steady

Adding to the uncertainty, the Federal Reserve decided to keep rates steady yesterday while signaling a more hawkish outlook. This comes after the latest CPI report showed a slight increase in inflation to 3.3%. This development challenges the notion of imminent rate cuts and may limit the equity market’s recent gains. Traders should monitor the Fed fund futures market, which has already removed the possibility of a 2025 rate cut following the announcement. Even if the market doesn’t decline sharply, the combination of high valuations and a cautious Fed may restrict further gains in the short term. This suggests a range-bound market, where strategies like selling covered calls on existing long positions can generate income. Selling call spreads is another approach we are using to benefit from potential sideways movement, particularly on certain tech stocks before Q3 earnings. Create your live VT Markets account and start trading now.

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