Stock-market investors are ‘living through 3 transitions’ and short-term volatility may be ‘gut wrenching’

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The Russell 2000 index finished Friday trade at an all-time high, marking its first such record since August 2018, and achieved those plaudits by producing a dazzling spate of outperformance against its large-capitalization peers on the week. The Russell 2000 index rose 6.1% for the week, while the Dow Jones Industrial Average rose 4.1%, the S&P 500 index gained 2.2%, while the Nasdaq Composite Index declined 0.6% over the period.

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Moreover, the popular value exchange-traded fund, the iShares S&P 500 Value ETF outperformed its Growth ETF counterpart, the iShares S&P 500 Growth ETF by 5.86 percentage points, marking its largest outperformance since March 2009 and its second-largest weekly outperformance on record, according to Dow Jones Market Data.

So how best to chart a path forward?

Emanuel and Chu recommend hedging growth risk by using “pandemic lows” opportunistically to buy puts for the Invesco QQQ Trust which tracks the Nasdaq-100 index of large-capitalization stocks. The pair also recommend selling calls and buying puts on the iShares Russell 2000 ETF for a collar, and judiciously looking to identify stocks that may benefit from further rotational shifts out of tech-related large-cap Nasdaq companies and into value-oriented small-caps.

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