Genuis’ Macrospective Memo
General U.S. Business Environment
As the market approaches its Friday close, 9/23/2022, the economic business environment seems unstable and teetering around extreme lows since we have past the midway point of Sept 2022 (many are expecting new market lows/recession.) AAA Corporate US debt interest rates have increased nearly 26 basis points(bps) from 4.26% to 4.52% since mid September. US High Yield Corporate debt increased only 49 bps with an interest rate at 8.84%.
And the corporate AAAs have never been at this high of a level going back two decades after breaking lower since the Great Recession.
Because of the shift in money return expectations, investors are selling off their safest assets at record pace. We have ways to go when you compare to the worst of the worst corporate High Yield CCC bonds. In our eyes we have been in a slow trodden recession since late March 2022. And lets consider the below graph for the CCC interest rates that have yet to hit its own highs. We might have some ways to go but not all that much.
UPDATE:
The Setup
And with our historical views of the corporate bond market in place, a bearish/neutral sentiment comes front of mind for the stock market. Doing a quick study of the the S&P 500 for example I found that since October 2012 the S&P 500 has only generated +3% returns roughly 6 percent of the time since 2012. In other words out of the 521 weekly returns observed only 34 of those weeks generated +3 percent or higher returns from Friday to Friday.
Today the S&P 500 ETF ($SPY) opened at $370.58. And 3% return for the S&P 500 would be $381.70 for next week Friday end of day 9/30/2022. Our thoughts for the portfolio would be employing a Diagonal Bear Put Calendar Spread.
Deployment
Leg setup:
SELL Sept 30, 2022 $380 PUT
BUY Oct 03, 2022 $384 Put
Net Debit limit $3.70