Many analysts have been suggesting that, in the near term, the markets may well have a meltdown. However, according to new developments, the equities markets in the US may well experience a rare ‘melt-up’ — a scenario in which the market suddenly and dramatically jumps up.
The possibility of such an event would be made possible by a number of factors. The jump would, of course, be profoundly bad for the economy in the long run. However, according to analysts like Morgan Stanley’s Andrew Sheets:
“As the rally continues, investors are growing more excited about the possibility of a ‘melt-up’ – a further sharp move higher in the US market fueled by a dovish Fed, stabilising data and light investor positioning.”
After all the talk of recession, it may come as a surprise that many of the country’s top financial experts would suggest a melt-up. The question is important since benchmarks like housing starts have not kept pace with the reported growth of the first quarter, indicating a diverging economy.
The economy’s growth in the first quarter and strong earnings have cooled the fears of many. This could mean that a ‘fear of missing out’ (FOMO) could drive substantial amounts of money into the market.
Such an event, though rare, has happened in the past. However, when the market moves dramatically this way, it generally means that it is vastly over-bought at the end of that cycle, leading to painful losses. In the long term, such moves are generally quite negative.
The best bet, according to most analysts, is to purchase short-dated call options. A call option provides an investor with the right, but not the obligation, to purchase a security at an agreed upon price.
With a short-dated call contract, a move higher would mean substantial profits for those holding calls, while a move lower would protect from dramatic down-side losses. According to Sheets, “For investors worried they are under-exposed to a more bullish scenario, we think call options offer the best risk-adjusted way to add beta.”
A secondary option may be Bitcoin (BTC). The digital currency offers hedge protection against a dramatic decline in securities, while at the same time functioning as a payment method. Should either scenario occur, Bitcoin is likely to remain relatively stable.
Do you think the market is set to ‘melt-up’ or ‘meltdown’? Is Bitcoin a good option for traders seeking stability? Let us know your thoughts in the comments below!