GOLDMAN SACHS: Here are the companies and industries that have traders most worried right now
- Goldman Sachs has identified the companies and industries that have investors the most worried.
- The firm's methodology involves looking at the prices for three-month put contracts, which are used to hedge against moves to the downside.
Sure, stocks have recovered quickly following their first 10% correction in years, but that doesn't mean investor nerves have calmed entirely.
Traders are still paying big premiums for hedges in certain areas of the market, according to Goldman Sachs. The firm is looking at prices for three-month put contracts - which are wagers that an asset will fall, and frequently used for downside protection.
The price to hedge has risen the most in the healthcare and consumer staples industries, as well as in consumer discretionary, financial, and small-cap stocks, according to Goldman. Here's a look at the cost of protection for each of those groups, ranked by change in put contract price:
"The fact that investors are willing to buy puts that have in some cases doubled in price over the past month suggests continued fear that underperformance could persist in the coming months in these pockets of the market," Katherine Fogertey and the Goldman derivatives team wrote in a client note.
But it doesn't end there. Goldman has dug even deeper into the trepidation still dictating investor behavior and identified a handful of single stocks that are commanding high hedging costs. Included in the group (listed in full below) is Citigroup, JPMorgan, United Rentals, Illinois Tool Works, and Amazon.
With all of that in mind, the final question becomes: What's an investor to do with this information? Well, that really depends.
You could elect to steer clear of the companies and industries with the biggest increase in hedging costs, operating under the assumption the market is correctly predicting trouble ahead for them. But you could also take a contrarian approach and view these areas as less likely to get hit hard during the next round of market turbulence.
Either way, Goldman has gone a long way towards giving you the data you need to inform such a decision.