Positioning for a Potential Market Correction

09/20/21 | Stacey Morris, CFA

Market strategists at several institutions have started to strike a more cautious note on the outlook for US equities in recent days. Morgan Stanley lowered its view on US equities to underweight the day after Labor Day. Credit Suisse has also taken a cautious stance on US equities, with a small underweight attributed to lofty valuations and regulatory concerns. Investors seem to agree that some caution is warranted. In a monthly survey of global investors conducted earlier in September, Deutsche Bank found that 58% of respondents expected a market decline of 5-10% by year-end 2021. Notably, Citigroup has flagged the potential for even a modest market correction to be exacerbated by forced selling.

Since its last record high close on September 2, the S&P 500 has fallen 2.3% through September 17 as the spread of the Delta variant clouds expectations for economic growth. September tends to be a weaker month for stocks, but is the recent downward pressure symptomatic of typical trading patterns, or is it the start of a more significant correction?

Investors with a cautious outlook or lacking conviction in a continued bull run for US equities should consider the S-Network BlackSwan Core Index (SWANXT). The index minimizes volatility through a 90% allocation to U.S. Treasuries, while a 10% allocation to in-the-money call options on the SPDR S&P 500 ETF Trust (SPY) offers participation in equity appreciation. The index is well positioned for a possible downturn while providing some upside potential should markets rebound. Whether investors are expecting a significant market correction or simply wanting to take some chips off the table due to stretched valuations, the SWANXT Index may be a compelling solution.

Learn More About the S-Network BlackSwan Indexes here.

SWANXT is the underlying index for the Amplify BlackSwan Growth and Treasury Core ETF (SWAN).

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