Stock indices ‘are changing’ as Big Tech gets hammered: Strategist

RBC Capital Markets Equity Derivatives Strategist Amy Wu Silverman joins Yahoo Finance Live to discuss the latest FOMC meeting, the October jobs report, market volatility, tech stocks, and the outlook for the economy.

Video Transcript

BRIAN SOZZI: Joining us now to continue the discussion is RBC Capital Markets equity derivatives strategist Amy Wu Silverman. Amy, always nice to see you. Do you think this will spark any types of volatility in the markets? Right now, the market seems to be taking these numbers in stride.

AMY WU SILVERMAN: Yeah, look, when it comes to the world of volatility, it's always about positioning. And I think, especially after what the Fed said on Wednesday, the positioning was really to expect this. And I think even the whisper numbers around the jobs number was higher than what the headline consensus said. Our own RBC numbers were above as well. And then that's kind of what has happened. And I think that that's why you're seeing green on the screen now. We'll certainly have to wait till the close, but I wouldn't actually be surprised to see volatility continue to sell off a little bit from here, given the expectations that were already set on Wednesday.

BRAD SMITH: What are the most attractive spots, even as we continue to kind parse the information or really evaluate the information that's come through today with the Fed's policy pathway? Where within the markets are going to continue to see either the biggest headwinds, or perhaps at least some opportunity to dive in right now?

AMY WU SILVERMAN: So it's interesting because I think when you get these pockets, when volatility does sell off-- you had VIX at kind of 30 handle for a while. And now, we're kind of coming back. Still in a high range, but certainly getting a little bit lower. I do think you can deploy some sort of sector trades especially-- next Tuesday, we'll have midterm elections. And certainly you're going to see some stratification there depending on who takes the different houses and Senate, et cetera.

So I think that's an opportunity. I think the other opportunity as you see overall volatility decline is kind of regionally and geographically. What's happening in China, what's happening in Europe. But things are very different depending on different central banks and what their actions are. But you often see volatility all come at once. And when you have that, you can kind of deploy it differently in different regions and geographies.

- Amy, we have seen tech stocks in particular being hit the hardest on the perception of higher rates, which the jobs report today does nothing to dispel. So what kind of activity have you been seeing in megacap tech? And what does that imply about what we're going to see from megacap tech?

AMY WU SILVERMAN: Yeah, so two years ago megacap tech was essentially your whole market, Julie. And that's not not true anymore in terms of, look, it's still a quarter of the S&P, it's still half of the queues. But those weights are coming down dramatically. And we kind of joke that how the meat is being made in the indices are changing. And when that changes, so does correlation. So one of the theses that I have for the end of the year is one of the reasons we may see equity volatility continue to dampen on an overall basis is because that correlation starts to decline when you get other heavyweights becoming more important in the indices.

So instead of tech, maybe it's large cap pharma or industrials or financials taking the place of something like a Meta that used to be 22% of the XLC and is now only 12%. So despite the fact that you see those long duration assets sell off, it could be good in a way because they also lose the sensitivity that they once had to the indices.

BRAD SMITH: Amy, there's one kind of frame of mind about which trades might be most apt into the end of the year. But I guess if we broaden that out even more so, regardless of whether or not we see a Santa Claus rally, what trades do you like into a recession?

AMY WU SILVERMAN: Yeah, so I think one thing to keep in mind really broadly is despite how high kind of headline VIX numbers are, they're still quite low relative to other [INAUDIBLE] asset volatility. So we've seen massive spikes in volatility, in rates, in effects. This shouldn't be surprising given what is driving the market right now.

But look, if you're an investor and you're looking for a simple tail hedge considering what could happen next year as we possibly go into a recession or possibly there are other geopolitical risks to be concerned about, then I think just simple, out of the money put options on an index like the S&P. I was recently at a conference, and one of the biggest tales I heard investors talking about was an escalation in Taiwan in 2023. Everyone was very concerned post the China party Congress that this is something that's going to be fast forwarded into 2023.

JULIE HYMAN: Amy, good to see you. Thanks so much. And with some good actionable stuff to do in the wake of this jobs report as well. Appreciate it. Amy Wu Silverman of RBC.