Buying Portfolio Insurance before the Storms Come

There is no shortage of hand-wringing in the current market landscape, especially with the S&P 500 retesting its closely followed 200-day moving average after breaking through it for a short while last week.

Volatility is running high right now and its effect is showing in the market. Despite the most robust earnings season since 2008, stocks are struggling to rally. The bearish camp has embraced the ???it???s as good as it gets??? mantra voiced during the Caterpillar (NYSE: CAT) earnings call, in which the company commented that the first quarter might be the “high water mark” for profit margins. That one-liner has had more influence on investor sentiment than any other data point or earnings surprise that has crossed the tape recently.

To the bull???s credit, all five of the so-called FAANG stocks have posted strong Q1 results. Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX) and Alphabet (NASDAQ: GOOGL) all beat on the top and bottom lines, but most of these earnings wins only received very modest enthusiasm. The exception to this trend was Amazon, which soared to a new all-time high on fantastic numbers.

Another report that helped to fortify the market lately was the news that Warren Buffett???s Berkshire Hathaway (NYSE: BRK.B) bought 75 million more shares of Apple in the first quarter. However, the pronounced weakness in several favorite sectors, namely semiconductors, aerospace/defense and financials, has erased gains from earlier this year and then some. There???s a growing feeling that there are few places for investors to hide, except for a select number of coveted names, amid evidence of broad technical damage in several former market leaders.

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