U.S. stocks jumped on Tuesday, with the S&P 500 scoring its best daily gain in almost two weeks as technology shares climbed and housing data pointed to continued resilience in the U.S. economy, despite the Federal Reserve’s sharply higher interest rates. The Dow Jones Industrial Average DJIA, +0.63%
rose about 211 points, or 0.6%, ending near 33,926, according to preliminary FactSet data. The S&P 500 index SPX, +1.15%
gained 1.1%, posting its best daily percentage gain since June 15, according to FactSet data. The Nasdaq Composite Index COMP, +1.65%
rose 1.7%. Stocks appeared poised to resume a tech-fueled rally that has the S&P 500 up 14% on the year so far and the Nasdaq about 29.5% higher. The S&P 500’s information technology sector jumped 2% Tuesday, while Communication Services rose 1.1%. Bolstering the tone, new home sales surged 12.2% in May, while the S&P CoreLogic Case-Shiller 20-city house-price index climbed in April.
U.S. stocks closed lower Monday, after Russia on the weekend was rocked by a brief revolt from the Wagner mercenary force. The Dow Jones Industrial Average DJIA, -0.04%
fell about 11 points, or less than 0.1%, ending near 33,715, according to preliminary FactSet data, giving up earlier gains in the final moments of trade. The S&P 500 index SPX, -0.45%
fell 0.4%, while the Nasdaq Composite Index COMP, -1.16%
closed down 1.2%. Stocks have been struggling to extend a recent rally driven by a handful of technology stocks that earlier in June lifted major indexes to their highest levels in more than a year. Investors and oil markets were on edge Monday after a brief mutiny in Russia over the weekend raised concerns about potential disruptions to global oil supplies. U.S. crude prices edged higher Monday, with West Texas Intermediate oil for August CL00, +0.53%
Russian President Vladimir Putin on Monday called the Wagner Group’s rebellion over the weekend a “criminal activity,” and said its organizers would be “brought to justice.” Speaking past 10 p.m. Moscow time, Putin said any attempts to organize mutiny “will end in defeat.” U.S. stocks were mostly lower on Monday following the short-lived rebellion by the Wagner Group that’s seen leaving Putin weakened. Oil futures settled slightly higher.
Investors will start the week nervously sorting through the aftermath of a short-lived rebellion by the mercenary Wagner Group that’s seen leaving Russian President Vladimir Putin weakened.
“As Monday’s global markets are set to begin trading, investors are laser-focused on whether the short-lived Russia insurrection was only the beginning of a much deeper thunderbolt set to rock geopolitical, economic and market stability in the days and weeks ahead,” Greg Bassuk, chief executive officer at AXS Investments in New York, told MarketWatch on Sunday in emailed comments.
U.S. stock-index futures edged up after the start of electronic trading Sunday night, while oil rallied. Futures on the Dow Jones Industrial Average YM00, +0.14%
rose 25 points, while S&P 500 futures ES00, +0.15%
edged up 0.1% and Nasdaq-100 futures gained 0.2%.
Global stocks fell last week as interest-rate hikes by European central banks stoked recession fears. In the U.S., the S&P 500 SPX, -0.77%
ended a streak of five straight weekly gains, while the Dow Jones Industrial Average DJIA, -0.65%
and Nasdaq Composite COMP, -1.01%
also pulled back.
While a weakened Russia raises the prospects of a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal strife in the nation with the world’s largest nuclear arsenal is less comforting, observers noted.
“This raises profound questions. It shows real cracks,” U.S. Secretary of State Antony Blinken told CBS News’ “Face the Nation” on Sunday morning.
Putin’s hold on power “certainly seems shakier than it was a few days ago,” but there remains “no clear contender to replace him, by election or coup,” said Benjamin Friedman, policy director at Defense Priorities, a foreign-policy think tank in Washington, D.C.
Nonetheless, the war in Ukraine “is weakening Russia in various ways, including by creating internal strife and dangerously discontented elites who have some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creates its own reality. That is dangerous to him. It’s hard to predict what additional power grabs and instability that could create,” he said.
AXS Investment’s Bassuk said the further turmoil “could drive a bloodbath of market volatility amid its impact on the war with Ukraine, a shifting balance among the G-8 superpowers, and the already heightened potential for a U.S. and global recession.”
Analysts have warned that an uptick in volatility may be overdue. The Cboe Volatility Index VIX, +4.11%,
a measure of expected volatility in the S&P 500 over the next 30 days, last week fell to its lowest since January 2020 and ended Friday below 14. Its long-term average stands near 20. The subdued performance, which has accompanied a year-to-date rally of more than 13% for the S&P 500 index, is taken by some market watchers as a sign of complacency.
But the quick termination of the rebellion could make it more of a “nonevent” for capital markets as trading resumes, said Marc Chandler, managing director at Bannockburn Global Forex.
While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.
“The war in Ukraine is likely unaffected, and Kyiv’s counteroffense thus far seems rather muted. The risk is that the war escalates if Kyiv resorts to medium- and long-range missiles to hit Russian assets in Crimea, and possibly in Russia proper,” Chandler said.
The rebellion, led by Wagner Group chief Yevgeny Prigozhin, saw the mercenary paramilitary force take over Russia’s southern military headquarters in Rostov-on-Don amid little resistance before marching largely unchallenged toward Moscow. Putin, without mentioning him by name, accused Prigozhin of treason.
The advance halted a little more than 120 miles from the capital before Prigozhin abruptly stood down in a deal that would see him sent to Belarus and charges against him of leading an armed rebellion dropped.
The dollar was little changed versus major rivals in the early going Sunday evening, while gold for August delivery GCQ23, +0.32%
edged up 0.2%.
All eyes on oil
Meanwhile, commodity and financial markets have seen big swings since Russia invaded Ukraine on Feb. 24, 2022.
First and foremost, the invasion produced a global energy shock. Russia was the world’s third-largest crude producer behind the U.S. and Saudi Arabia, and a key supplier of natural gas to Western Europe.
Crude-oil futures soared in the immediate aftermath of the invasion, with the global benchmark Brent crude BRN00, +0.91%
topping out just shy of $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.
Natural-gas prices had also soared, and fears of shortages led to a scramble by European governments to fill storage amid apocalyptic predictions about a harsh 2022-’23 winter.
Energy prices subsequently fell back. Crude oil is trading well below levels seen ahead of the invasion. And despite waves of sanctions by European and U.S. governments and price caps aimed at limiting Moscow’s ability to fill its coffers, Russian crude supplies remain robust.
Oil prices were on the rise Sunday night, with WTI up 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent gained 91 cents, or 1.2%, to $74.76 a barrel.
August Brent crude BRNQ23, +0.95%
settled Friday at $73.85 a barrel, falling 3.6% last week. West Texas Intermediate crude for August delivery CL00, +0.91%,
the U.S. benchmark, dropped 3.9% last week to end Friday at $69.16 a barrel.
Jorge Leon, senior vice president at Rystad Energy, noted that in the past 35 years, geopolitical shocks involving big oil producers have seen crude futures jump by an average of 8% in the five days after the start of the triggering event (see chart below).
Rystad Energy
A rise of that magnitude looks unlikely given how quickly the rebellion was quelled, he said.
“Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week. We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Leon said in emailed comments.
Investors will start the week nervously sorting through the aftermath of a short-lived rebellion by the mercenary Wagner Group that’s seen leaving Russian President Vladimir Putin weakened.
“As Monday’s global markets are set to begin trading, investors are laser-focused on whether the short-lived Russia insurrection was only the beginning of a much deeper thunderbolt set to rock geopolitical, economic and market stability in the days and weeks ahead,” Greg Bassuk, chief executive officer at AXS Investments in New York, told MarketWatch on Sunday in emailed comments.
U.S. stock-index futures edged up after the start of electronic trading Sunday night, while oil rallied. Futures on the Dow Jones Industrial Average YM00, +0.14%
rose 75 points, while S&P 500 futures ES00, +0.12%
edged up 0.2% and Nasdaq-100 futures gained 0.3%.
Global stocks fell last week as interest-rate hikes by European central banks stoked recession fears. In the U.S., the S&P 500 SPX, -0.77%
ended a streak of five straight weekly gains, while the Dow Jones Industrial Average DJIA, -0.65%
and Nasdaq Composite COMP, -1.01%
also pulled back.
While a weakened Russia raises the prospects of a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal strife in the nation with the world’s largest nuclear arsenal is less comforting, observers noted.
“This raises profound questions. It shows real cracks,” U.S. Secretary of State Antony Blinken told CBS News’ “Face the Nation” on Sunday morning.
Putin’s hold on power “certainly seems shakier than it was a few days ago,” but there remains “no clear contender to replace him, by election or coup,” said Benjamin Friedman, policy director at Defense Priorities, a foreign-policy think tank in Washington, D.C.
Nonetheless, the war in Ukraine “is weakening Russia in various ways, including by creating internal strife and dangerously discontented elites who have some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creates its own reality. That is dangerous to him. It’s hard to predict what additional power grabs and instability that could create,” he said.
AXS Investments’ Bassuk said the further turmoil “could drive a bloodbath of market volatility amid its impact on the war with Ukraine, a shifting balance among the G-8 superpowers, and the already heightened potential for a U.S. and global recession.”
Analysts have warned that an uptick in volatility may be overdue. The Cboe Volatility Index VIX, +4.11%,
a measure of expected volatility in the S&P 500 over the next 30 days, last week fell to its lowest since January 2020 and ended Friday below 14. Its long-term average stands near 20. The subdued performance, which has accompanied a year-to-date rally of more than 13% for the S&P 500 index, is taken by some market watchers as a sign of complacency.
But the quick termination of the rebellion could make it more of a “nonevent” for capital markets as trading resumes, said Marc Chandler, managing director at Bannockburn Global Forex.
While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.
“The war in Ukraine is likely unaffected, and Kyiv’s counteroffense thus far seems rather muted. The risk is that the war escalates if Kyiv resorts to medium- and long-range missiles to hit Russian assets in Crimea, and possibly in Russia proper,” Chandler said.
The rebellion, led by Wagner Group chief Yevgeny Prigozhin, saw the mercenary paramilitary force take over Russia’s southern military headquarters in Rostov-on-Don amid little resistance before marching largely unchallenged toward Moscow. Putin, without mentioning him by name, accused Prigozhin of treason.
The advance halted a little more than 120 miles from the capital before Prigozhin abruptly stood down in a deal that would see him sent to Belarus and charges against him of leading an armed rebellion dropped.
The dollar was little changed versus major rivals in the early going Sunday evening, while gold for August delivery GCQ23, +0.18%
edged up 0.2%.
All eyes on oil
Meanwhile, commodity and financial markets have seen big swings since Russia invaded Ukraine on Feb. 24, 2022.
First and foremost, the invasion produced a global energy shock. Russia was the world’s third-largest crude producer behind the U.S. and Saudi Arabia, and a key supplier of natural gas to Western Europe.
Crude-oil futures soared in the immediate aftermath of the invasion, with the global benchmark Brent crude BRN00, +0.73%
topping out just shy of $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.
Natural-gas prices had also soared, and fears of shortages led to a scramble by European governments to fill storage amid apocalyptic predictions about a harsh 2022-’23 winter.
Energy prices subsequently fell back. Crude oil is trading well below levels seen ahead of the invasion. And despite waves of sanctions by European and U.S. governments and price caps aimed at limiting Moscow’s ability to fill its coffers, Russian crude supplies remain robust.
Oil prices were on the rise Sunday night, with WTI up 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent gained 91 cents, or 1.2%, to $74.76 a barrel.
August Brent crude BRNQ23, +0.80%
settled Friday at $73.85 a barrel, falling 3.6% last week. West Texas Intermediate crude for August delivery CL00, +0.69%,
the U.S. benchmark, dropped 3.9% last week to end Friday at $69.16 a barrel.
Jorge Leon, senior vice president at Rystad Energy, noted that in the past 35 years, geopolitical shocks involving big oil producers have seen crude futures jump by an average of 8% in the five days after the start of the triggering event (see chart below).
Rystad Energy
A rise of that magnitude looks unlikely given how quickly the rebellion was quelled, he said.
“Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week. We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Leon said in emailed comments.
That was the advice from one financial analyst as U.S. investors awoke on Saturday to news of an apparent armed rebellion against Moscow led by Yevgeny Prigozhin, the owner of the powerful Russian mercenary organization Wagner Group.
Others speculated that the crisis in Russia could drive U.S. stocks lower, as some traders were already betting on a selloff once markets reopen on Monday due to this sudden spike in geopolitical risk.
“The developments in Russia are ultimately going to suggest President Putin’s leadership is weakening quickly and that resources may shift away from the war with Ukraine. It is too early to say how this will impact Wall Street, but the risk of desperate measures from Putin might make some investors nervous,” Edward Moya, senior market analyst at Oanda, said Saturday.
A simmering feud between Prigozhin, the leader of the military contractor whose mercenary forces have been fighting alongside Russian military troops in Ukraine, and the Russian Defense Ministry came to a head early Saturday as Prigozhin led his troops to successfully overtake a Russian military outpost near the Ukrainian frontier, which the Kremlin has used as its command center for overseeing the war in Ukraine.
Amid the mixture of reliable information and unfounded speculation, market analysts have scrambled to make sense of the situation and what it might mean for financial markets and the global economy.
The main theme that has emerged so far is that U.S. stocks would suffer unless the Russian military managed to quickly suppress the rebellion, as may have occurred with reports late Saturday that Prigozhin had halted a Wagner advance on Moscow and, in fact, might be relocating to neighboring Belarus. But how would something that could potentially cut short the war in Ukraine — which has been a bugbear for markets since the full-scale invasion by Russian forces in February 2022 — be a negative for stocks?
The answer is that chaos leads to uncertainty, and that uncertainty is anathema to markets — especially when it could disrupt global oil and food supplies.
“I’d bet on this creating more uncertainty which is generally going to be negative for risk … in the short term at least you see higher geopolitical risk premia — longer term the risks are on both sides really: does this precipitate the collapse of the Russian front and the war ends?” said Neil Wilson, chief market analyst at Finalto, in a note to clients on Saturday.
Others noted that the crisis is coming at a vulnerable time for U.S. markets, while Michael Antonelli, a market strategist at R.W. Baird & Co., suggested in a tweet that the crisis “has to be” bearish for U.S. stocks.
The S&P 500 index SPX, -0.77% closed out its worst week since March on Friday as a series of interest-rate hikes in the U.K. and across Europe last week sparked fresh fears of a global recession. Some analysts noted that the pullback swiftly followed signs that investors are growing more bullish following a powerful rally that sent stocks to their highest levels in 14 months. There are concerns that this shift in sentiment could presage investors’ final capitulation.
Sven Henrich, founder and lead strategist of Northman Trader, noted that the Cboe Volatility Index VIX, +4.11%,
the market’s so-called fear gauge, which measures the stock market’s expectations for volatility over the next 30 days, managed to finish last week below 13.5, its lowest level since January 2020, even as stocks pulled back.
If stocks do continue to slide, that would mean new lows for the Vix have proved to be a reliable counterindicator, suggesting that investors had grown complacent before being walloped by a fresh shock.
Asian markets will be the first to react to ongoing developments by Sunday evening Eastern time, but derivatives traders using CME Group’s Globex platform to trade swaps tracking the value of U.S. equity indexes are already betting on a selloff.
Meanwhile, bitcoin BTCUSD, +0.11%,
an asset that does reliably trade 24/7, was down just 0.8% at $30,675, a slight pullback after achieving its highest level in a year late last week. By Saturday evening the leading cryptocurrency has reversed that earlier dip.
Where might investors turn for safety if markets do become chaotic?
Finalto’s Wilson said investors could seek shelter in the currency market, where the U.S. dollar DXY, +0.47%,
Swiss franc USDCHF, -0.02%
and maybe the euro EURUSD, +0.32%
and British pound GBPUSD, +0.02%
could benefit from a spike in demand. More “de-risking” could send investors into ultrasafe government bonds like U.S. Treasurys TMUBMUSD10Y, 3.741%,
which could help to push yields lower, as bond yields move inversely to prices.
Wilson anticipated that European indexes could be “more exposed to de-risking due to makeup and proximity to Russia and the war in Ukraine.” He also noted the possibility that this latest crisis could send the S&P 500 and Nasdaq Composite COMP, -1.01%
higher if investors decided to seek shelter in high-quality growth names like Apple Inc. AAPL, -0.17%,
Nvidia Corp. NVDA, -1.90%
or Microsoft Corp. MSFT, -1.38%,
which have helped to drive this year’s equity-market rally.
Whatever happens, the outcome of the crisis should be more clear within the next 35 hours, Wilson said.
“[H]ow the market opens after the weekend will depend on what happens in the next 36 hours. … [I]t could all be over by then,” Wilson said.
Regardless, one of the first to interpret the market’s reaction on Monday will be Melbourne-based Chris Weston, head of research at online broker Pepperstone.
Until then, he cautioned investors against reading too much into the Wagner situation, since analysts’ visibility into a very complicated geopolitical situation is “poor.”
“The humble market participant would simply say they have no edge in knowing how this plays out and our visibility to read this through to markets is currently poor — the information is often biased and it’s hard to truly know what is fact and what is fed to influence. … [W]ill this lead to genuine regime change, fail or perhaps inflame and lead to a market shock?” Weston said in comments provided to MarketWatch.
“At this point we simply don’t know, but it feels like we get enough clarity on potential outcomes and even timelines in the next 24-48 hours — at this point the prospect of modest downside risk on Monday is elevated and naturally we’ll be watching crude and EU assets most closely,” he said.
Terry Haines, founder of Pangea Policy, said in an email to clients that the ongoing uncertainty fueled by the Wagner rebellion reveals the fragility of the Putin regime, and might marginally boost chances of a Ukraine victory.
But Haines also conceded that it’s a “developing and unstable situation with various facets that on net add to geopolitical uncertainties, to which markets usually react negatively.” Investors must also consider that, should that rebellion fail, it could be “replaced by stronger Russian control” or create further instability as “Wagner disintegrates.”
In that same vein, Jim Bianco, head of Bianco Research, offered up a joke aimed at all the armchair geopolitical analysts suddenly flocking to Twitter.
Markets may take a look at this crisis and view it as a “bullish development after some initial volatility, the Kobeissi Letter’s editor in chief and founder, Adam Kobeissi, told MarketWatch in Saturday comments.
“After all, the end of the war in Ukraine is the market’s top geopolitical driver right now, and if this increases the odds of a peace agreement and/or Russia withdrawing from Ukraine, it is likely to be perceived as bullish over the next few weeks,” he said.
He recommended that investors keep an eye on prices of oil and gold, which could be particularly sensitive to any fresh developments.
U.S. stocks finished lower on Friday, capping off the worst week for the S&P 500 and Nasdaq Composite since the collapse of Silicon Valley Bank back in March. The S&P 500 SPX, -0.77%
shed 33.54 points, or 0.8%, to 4,348.35, bringing its weekly drop to 1.4%, based on preliminary closing data from FactSet. This represents the large-cap index’s worst week since the week ended March 10, which coincided with the collapse of Silicon Valley Bank following a doomed attempt to raise capital days earlier. The Nasdaq Composite COMP, -1.01%
fell 138.09 points, or 1%, to 13,492.52, shedding 1.4% for the week, also the worst since March 10. The Dow Jones Industrial Average DJIA, -0.65%
fell 218.02 points, or 0.6%, to 33,728.69, falling 1.7% for the week, its worst in just over a month. U.S. stocks have suffered this week as a torrid bull run appeared to run out of steam as worries about the outlook for global growth resurfaced.
Trading in U.S. stock option contracts has surged in 2023 as retail and institutional traders have harnessed bullish call options to chase a runaway rally in U.S. stocks, market analysts told MarketWatch.
As of Friday, 46 million option contracts linked to U.S. equity indexes, individual stocks and exchange-traded funds have traded hands every trading session on average this month, according to an analysis by Callie Cox, a U.S. equity strategist at eToro.
This means that, barring a sudden drop-off in trading activity, June is on track to be the busiest month for option traders ever, Cox said. That is particularly notable given that the summer months are typically more placid on Wall Street.
“It’s pretty incredible for a summer month. It shows how engaged investors are after such a strong rally,” said Callie Cox, a U.S. equity strategist at eToro, during an interview with MarketWatch.
ETORO
Much of the demand has centered on call options: trading volume in these contracts has averaged 26 million a day so far, leaving June on track for the heaviest month of call buying since November 2021, Cox said.
Several overlapping trends have contributed to the surge in option demand, market analysts said.
Investors wary about a rally that recently carried the S&P 500 index to its highest level in 14 months have opted to buy short-dated calls. Often these are contracts tied to the S&P 500 or the index-tracking SPDR S&P 500 exchange-traded fund with less than 24 hours left until expiration, a class of options referred to as “0DTEs” for “zero days to expiration.”
Some traders see these cheap short-term bets as a particularly affordable, if risky, strategy for reaping gains as the market marches higher, according to market analysts and portfolio managers who spoke with MarketWatch.
And when stocks pull back, investors often change their strategy and instead of buying calls, opt to take advantage by buying or selling put options.
While a call represents a bet that a given index, stock or currency will rise, a put represents the opposite.
In addition to betting on calls tied to popular equity indexes and exchange-traded funds like the S&P 500 or the Invesco QQQ Trust Series 1 ETF QQQ, -0.99%,
investors are also scooping up bullish options tied to Nvidia Corp. and other market leaders, hoping to maximize any returns from the artificial intelligence boom.
The Wall Street Journal reported earlier this week that trading in call options tied to shares of Nvidia Corp. NVDA, -1.90%
and two other chip stocks, Advanced Micro Devices AMD, -0.62%
and Intel Corp., INTC, +0.89%
has surged fivefold since the beginning of the year, citing data from Cboe Global Markets, owner of the world’s largest options exchange.
But demand for calls has expanded beyond megacap technology names into areas of the market that have trailed since the start of the year, including small-cap stocks and others, which have rallied in June.
The Russell 2000 RUT, -1.44%,
an index that tracks small-cap stocks traded in the U.S., is up nearly 5% year-to-date. As of the end of May, it was marginally negative for the year, options experts said.
“With mega cap technology leading the indexes higher, investors started to play catch-up by trying to buy the second-tier and heavily shorted companies,” said Alon Rosin, head of equity derivatives at Oppenheimer, in emailed commentary shared with MarketWatch.
This means that investors’ rush to try to keep up with the market hasn’t only benefited hot AI-stocks.
Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, made a similar observation in a recent note to clients where she pointed out that call buying has surged for both companies expected to benefit from the AI boom, as well as stocks in an RBC basket of companies that are threatened by it — stocks like Robert Half International RHI, -0.54%,
Chegg Inc. CHGG, -4.00%
and Yext Inc. YEXT, -2.74%,
she said.
Silverman said heavy call buying in this group is indicative of the market’s “extreme call exuberance.”
Call buying has helped send popular indicators of positioning like the put-call ratio and skew, which measures the cost of downside protection via puts vs. demand for upside exposure via calls, to their lowest levels of the year earlier this month.
“People are reaching for upside via calls, and you’re seeing skew falling due to the fact that everybody has been buying calls,” said Mark Callahan, head of trading and a portfolio manager at Aptus Capital Advisors, during a phone interview with MarketWatch.
Callahan manages several active exchange-traded funds that require heavy option trading.
U.S. stocks have marched higher this year, with the S&P 500 rising for five straight weeks through June 16, its longest streak of weekly gains since November 2021. The Nasdaq Composite COMP, -1.01%
has seen even stronger performance, and its eight-week win streak has been heralded as the tech-heavy index’s longest rally since 2019, according to FactSet data.
The S&P 500 has risen more than 13% so far this year, while the Nasdaq has gained more than 30%. Both have erased much of their losses from 2022, which was the worst year for stocks since 2008. Last week, both the S&P 500 and Nasdaq hit their highest levels since April 2022.
However, there are some signs that the torrid rally might be in the midst of a pullback as the S&P 500, Nasdaq and Dow Jones Industrial Average DJIA, -0.65%
are all on track to finish the week lower on Friday.
My wife and I are both 54 years old and have accumulated a taxable account totaling $2.3 million, and retirement assets totaling $2.2 million. We hope to retire at 55, and we are wondering about the best way to take our distributions. Clearly we will not touch the qualified money until we reach 59½.
I understand the 4% rule, but when it comes to taking the money, is it better to have a set monthly, quarterly, or annual withdrawal, or is it better to take a lump sum? I can see myself going crazy trying to time market tops in order to take distributions. I was planning to take money off the table after the peak in 2021. I purposely held out until 2022 for tax purposes and that backfired.
Is the best course of action to set it and forget on a monthly, quarterly, or annual basis?
You touch on a really common issue retirees have: the distribution phase.
For decades, Americans are told to save, save, save for retirement, but then they get to the point where they need to start using the money…and that can be a complicated process. Retirees need to have an idea of how much to withdraw, what that distribution’s impact will be on the rest of their nest egg, what to expect come tax time and how not to use that money too quickly.
Like so much in personal finance, the answer to your question is highly dependent on individual circumstances. I’ll get to that in a minute.
First, a note about the 4% rule. This rule is meant to be a guideline. For some people, 4% is too much, while for others, it isn’t enough. Experts have argued its applicability, too — Morningstar, for example, said retirees could use a rate of 3.3% and would have a 90% probability of not running out of money in retirement.
Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column
Before you commit to the 4% rule (which, of course, you can always adjust as the years go on), do a few quick calculations on how much you expect to spend in retirement — with a buffer included — and see what the percentage of your total retirement savings actually is. You may be able to retain more in your retirement assets than you expected.
If you’re still not sure on how much to take out, perhaps start a bit more conservatively in an effort to preserve your investments. The less money you take out, the more in your accounts that can continue to grow.
Also, be aware of something called the “sequence of returns” risk, which is when your portfolio value drops too quickly at the beginning of your distribution journey. The result could be less than ideal for your account.
Pay attention to the tax implications of your decision, and consider consulting a qualified financial planner and/or an accountant to help you run the numbers. There are plenty of factors you have not included in your letter, such as if any of that money is in Roth accounts, and even then, a qualified financial planner can get into the granular details to help you make the most of your retirement spending and savings. You might find making Roth conversions to be beneficial as your taxable income drops — it’s also a way to avoid required minimum distributions down the road.
Also, you’re right not to touch your retirement assets until you’re 59 ½ years old (and for readers who are unaware, that’s when most retirement account assets become available without incurring a penalty). There are exceptions, such as the “55 rule,” which is when you are allowed to withdraw from your retirement account after separation from service if you are 55 or older. The account you can withdraw from must be linked to the job from which you’re separating, and there may be other stipulations attached. Check with your employer about what you are and aren’t allowed to do with your retirement plan.
Now, how often to distribute. This will depend on your comfort level, but some advisers suggest pulling six to 12 months’ of monthly expenses in a money-market account and then creating a paycheck effect. “Setting up monthly or biweekly distributions will create the feel of still working and help you stay within your budget,” said Brian Schmehil, a certified financial planner and managing director of wealth management for The Mather Group.
Make sure the accounts you’re drawing from have shorter investment horizons and are in less risky investments, which will help you “continue to spend what you want to spend and accomplish your goals without having to be overly mindful of market volatility,” Schmehil said. This is in line with the bucket approach, which is when your assets are divided into various investment horizons. The least risky is in your shorter-term “bucket,” whereas the investments with the most risk are earmarked for the long term.
Having a monthly distribution schedule might help keep you in check. “I like to use monthly for most people,” said David Haas, a certified financial planner and owner of Cereus Financial Advisors. “It keeps them thinking about a monthly budget if they have a propensity to spend too much.”
Keep in mind how many variables can change over the course of your retirement. For example, if you switch up where your retirement money comes from — your taxable account, your retirement accounts, Social Security, etc. — your tax liabilities could change. Also, inflation might have an impact on your spending, or how quickly you draw down your distribution. Your risk tolerance may also transform, especially as you get older and you see your nest egg dwindle or you face market volatility. The frequency in which you take your money might change too, and if it does, that’s OK.
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My wife and I are both 54 years old and have accumulated a taxable account totaling $2.3 million, and retirement assets totaling $2.2 million. We hope to retire at 55, and we are wondering about the best way to take our distributions. Clearly we will not touch the qualified money until we reach 59½.
I understand the 4% rule, but when it comes to taking the money, is it better to have a set monthly, quarterly, or annual withdrawal, or is it better to take a lump sum? I can see myself going crazy trying to time market tops in order to take distributions. I was planning to take money off the table after the peak in 2021. I purposely held out until 2022 for tax purposes and that backfired.
Is the best course of action to set it and forget on a monthly, quarterly, or annual basis?
You touch on a really common issue retirees have: the distribution phase.
For decades, Americans are told to save, save, save for retirement, but then they get to the point where they need to start using the money…and that can be a complicated process. Retirees need to have an idea of how much to withdraw, what that distribution’s impact will be on the rest of their nest egg, what to expect come tax time and how not to use that money too quickly.
Like so much in personal finance, the answer to your question is highly dependent on individual circumstances. I’ll get to that in a minute.
First, a note about the 4% rule. This rule is meant to be a guideline. For some people, 4% is too much, while for others, it isn’t enough. Experts have argued its applicability, too — Morningstar, for example, said retirees could use a rate of 3.3% and would have a 90% probability of not running out of money in retirement.
Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column
Before you commit to the 4% rule (which, of course, you can always adjust as the years go on), do a few quick calculations on how much you expect to spend in retirement — with a buffer included — and see what the percentage of your total retirement savings actually is. You may be able to retain more in your retirement assets than you expected.
If you’re still not sure on how much to take out, perhaps start a bit more conservatively in an effort to preserve your investments. The less money you take out, the more in your accounts that can continue to grow.
Also, be aware of something called the “sequence of returns” risk, which is when your portfolio value drops too quickly at the beginning of your distribution journey. The result could be less than ideal for your account.
Pay attention to the tax implications of your decision, and consider consulting a qualified financial planner and/or an accountant to help you run the numbers. There are plenty of factors you have not included in your letter, such as if any of that money is in Roth accounts, and even then, a qualified financial planner can get into the granular details to help you make the most of your retirement spending and savings. You might find making Roth conversions to be beneficial as your taxable income drops — it’s also a way to avoid required minimum distributions down the road.
Also, you’re right not to touch your retirement assets until you’re 59 ½ years old (and for readers who are unaware, that’s when most retirement account assets become available without incurring a penalty). There are exceptions, such as the “55 rule,” which is when you are allowed to withdraw from your retirement account after separation from service if you are 55 or older. The account you can withdraw from must be linked to the job from which you’re separating, and there may be other stipulations attached. Check with your employer about what you are and aren’t allowed to do with your retirement plan.
Now, how often to distribute. This will depend on your comfort level, but some advisers suggest pulling six to 12 months’ of monthly expenses in a money-market account and then creating a paycheck effect. “Setting up monthly or biweekly distributions will create the feel of still working and help you stay within your budget,” said Brian Schmehil, a certified financial planner and managing director of wealth management for The Mather Group.
Make sure the accounts you’re drawing from have shorter investment horizons and are in less risky investments, which will help you “continue to spend what you want to spend and accomplish your goals without having to be overly mindful of market volatility,” Schmehil said. This is in line with the bucket approach, which is when your assets are divided into various investment horizons. The least risky is in your shorter-term “bucket,” whereas the investments with the most risk are earmarked for the long term.
Having a monthly distribution schedule might help keep you in check. “I like to use monthly for most people,” said David Haas, a certified financial planner and owner of Cereus Financial Advisors. “It keeps them thinking about a monthly budget if they have a propensity to spend too much.”
Keep in mind how many variables can change over the course of your retirement. For example, if you switch up where your retirement money comes from — your taxable account, your retirement accounts, Social Security, etc. — your tax liabilities could change. Also, inflation might have an impact on your spending, or how quickly you draw down your distribution. Your risk tolerance may also transform, especially as you get older and you see your nest egg dwindle or you face market volatility. The frequency in which you take your money might change too, and if it does, that’s OK.
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U.S. stocks finished mostly higher on Thursday, with both the Nasdaq Composite and S&P 500 bringing a three-day losing streak to an end. The S&P 500 SPX, +0.37%
gained 16.16 points, or 0.4%, to finish at 4,381.85, according to preliminary closing data from FactSet. The Nasdaq Composite COMP, +0.95%
rose by 128.41 points, or 1.3%, to 13,630.61, per early closing data. The Dow Jones Industrial Average DJIA, -0.01%
was the only one of the main indexes to finish lower, falling 4.75 points, or less than 0.1%, to 33,947.04, its fourth straight day in the red. It’s the longest losing streak for the Dow since May 25, FactSet data show.
U.S. stocks closed lower for a third session in a row, retreating after recently touching their highest levels in more than a year. The Dow Jones Industrial Average DJIA, -0.30%
shed about 102 points, or 0.3%, ending near 33,951, the S&P 500 index SPX, -0.52%
closed 0.5% lower and the Nasdaq Composite Index COMP, -1.21%
shed 1.2%, according to preliminary FactSet data. Stocks have been drifting lower in the past three sessions, pausing a recent rally that lifted the S&P 500 out of a bear market. The second-guessing by bulls comes as the Federal Reserve appears near, but not finished, raising rates in this cycle. Fed Chairman Jerome Powell told Congress on Wednesday to expect more rate hikes this year, with inflation still running well above the central bank’s 2% annual target. Fed officials kept their policy rate in a 5%-5.25% range in June, but signaled potentially two more rate hikes this year. The Fed’s “dot plot” indicates the benchmark rate could peak in a 5.5%-5.75% range.
A nascent category of mental health treatments is getting a major cash infusion.
Blake Mycoskie, founder of the canvas-footwear phenomenon TOMS Shoes, has committed to giving $100 million to support psychedelic research and access, Mycoskie told MarketWatch in an exclusive interview. The money will help fund academic institutions investigating psychedelics’ potential to treat anxiety, depression, post-traumatic stress disorder and other mental-health issues, as well as nonprofits helping to connect patients in need with psychedelic treatments.
Traditional psychedelics include hallucinogens like LSD and psilocybin, or “magic” mushrooms–recently legalized in Oregon and Colorado. Other drugs that can alter mood and perception–such as ketamine and MDMA, also known as ecstasy–aren’t classical psychedelics but are broadly included in the research and policy discussions generating a surge of interest in this class of treatments. The U.S. Food and Drug Administration, for example, has granted psilocybin and MDMA “breakthrough therapy” status, a designation designed to expedite development and review of drugs for serious conditions, and could approve MDMA for treatment of PTSD as soon as next year.
Given the rapid developments in the field, ”we really need to get this right, and we really need to have these foundations and nonprofits funded properly,” therapists trained, and clinics open and running smoothly, Mycoskie said. “I felt a real sense of urgency,” he said, and asked his wealth manager, “what’s the most that I can give?”
The $100 million answer to that question amounts to about a quarter of Mycoskie’s net worth and marks a major milestone in psychedelics’ delicate image transformation. Shedding some of their dangerous-party-drug reputation, psychedelics are gaining attention from top pharmacologists, the scientific community, biotech companies and investors who see them as a critical part of the solution to America’s mental health crisis.
Cracked open
Mycoskie, 46, said his interest in psychedelics dates back to 2017, when a friend returning from a trip to Central America described his incredible experience with ayahuasca, a plant-based psychedelic brewed into a tea. As an entrepreneur under intense pressure to perform, Mycoskie said, he decided to try it for himself. The experience “cracked me open, and it connected me more to my faith in God, made me feel that we were all connected and everything was fine and perfect,” he said. “I came back just feeling like, wow, that was more powerful than any therapy I’d ever done.” He later tried MDMA-assisted therapy, he said, which also helped him process issues that traditional talk therapy had left unresolved.
Realizing how many people could benefit from similar treatments, Mycoskie started giving money to academic groups and the Multidisciplinary Association for Psychedelic Studies, or MAPS, a nonprofit organization. He also got involved in last year’s Colorado ballot initiative, which legalized psilocybin and several other psychedelic substances, including ibogaine, which has shown potential to treat substance-use disorders. Mycoskie has already given about $10 million to psychedelic research and access, he said, and plans to give about $5 million annually for 18 more years.
Mycoskie was a bit squeamish at first, he acknowledges, about publicly backing research on drugs that are largely illegal. “Am I going to get held up at TSA every time I go through the airport?” he remembers thinking. The U.S. Drug Enforcement Administration categorizes LSD and MDMA alongside heroin as “schedule one” drugs, defined as “drugs with no currently accepted medical use and a high potential for abuse.” But with growing public awareness and acceptance of the drugs’ potential as mental-health treatments, he said, he felt emboldened to make a big public commitment, and “the research has caught up,” he said. “It’s important that people like myself put their name out there and their money out there to show that this really is a path forward,” he said.
Mycoskie’s $100 million commitment “is the biggest that we’ve ever seen in the psychedelics space,” said Joe Green, president of the Psychedelic Science Funders Collaborative, a nonprofit supporting philanthropy in the field, and a MAPS board member. Now that research has made great strides to support use of the medicines as mental-health treatments, that money can help ensure that “these actually come to the world in a safe and beneficial way,” Green said. With certain treatments legalized in Oregon and Colorado, for example, “the system requires licensed guides, facilitators, licensed service centers,” he said. “It’s not like cannabis medical–you won’t be able to take the mushrooms outside the service center.”
Psychedelic therapeutics market could be worth more than $8.3 billion by 2028
Mycoskie plans to publicize his pledge at the Multidisciplinary Association for Psychedelic Studies’ psychedelic science conference–billed as “the largest psychedelic conference in history”–this week in Denver. On the agenda: Sessions ranging from state policy and regulatory considerations to clinical trials of psilocybin- and MDMA-assisted therapy and “sex and psychedelics: weaving altered states for healing and pleasure.”
The news comes as lawmakers on both sides of the aisle are pushing for new funding for research into the use of psychedelics to treat PTSD in military service members as part of the fiscal year 2024 National Defense Authorization Act, which the House Armed Services Committee will consider Wednesday.
Already, public companies like Atai Life Sciences ATAI, -6.91%,
Compass Pathways CMPS, -3.37%
and Cybin CYBN, +6.81%
are developing therapies based on psychedelic substances. The psychedelic therapeutics market could be worth more than $8.3 billion by 2028, according to InsightAce Analytic. Even the federal government is throwing money at this niche, funding efforts to develop psychedelic mental-health treatments without the hallucinogenic side effects.
More than one in five U.S. adults live with a mental illness, according to the National Institute of Mental Health, and less than half of the roughly 58 million adults with any mental illness are receiving treatment. Suicide rates, which have been on a long upward trajectory, declined briefly between 2018 and 2020 before returning to peak levels in 2021, according to the Centers for Disease Control and Prevention. Nine out of 10 U.S. adults believe the country is suffering a mental health crisis, according to a survey last year by CNN and KFF, a health policy nonprofit. And commonly prescribed antidepressants, such as selective serotonin reuptake inhibitors (SSRIs) don’t work well for many patients.
Nushama, a New York City wellness center offering ketamine-based therapy.
Courtesy of Nushama and Costas Picadas
Mental illness “is truly an epidemic, and we are losing the fight,” said Dylan Beynon, CEO and founder of Mindbloom, which offers a telehealth ketamine treatment program. While there are some existing solutions that are helping to bend the curve, he said, more research and educational support for providers and patients is needed, he said.
Indeed, some substantial hurdles still separate psychedelic mental-health treatments from many of the patients they might benefit, including a lack of insurance coverage for the currently legal treatments and debate over how to administer them safely. In the case of ketamine, for example, which is FDA-approved as an anesthetic and used off-label as a mental-health treatment, some providers favor in-person guided sessions while others, like Beynon, advocate for telehealth prescribing–a model that boomed during the pandemic.
Some experts have lately warned that the practice of psychedelic medicine may be getting ahead of the science. Given the growing public and commercial interest, “there is the risk that use of psychedelics for purported clinical goals may outpace evidence-based research and regulatory approval,” the American Psychiatric Association said last year in a position statement on psychedelic and “empathogenic” agents–a category that includes MDMA.
Mycoskie has also made some investments in the psychedelics space, although he said profits aren’t his motivation. He has invested in Mind Medicine Inc. MNMD, -0.50%,
which says it is developing “psychedelic inspired medicines” that aim to treat the underlying causes of distress in the brain. And Mycoskie helped fund a public benefit corporation linked with MAPS, which is taking MDMA through the FDA approval process–an investment that will pay dividends when the treatment is commercialized, he said.
Providers currently offering ketamine treatments say they’re eager to expand into MDMA and other therapies in the category as soon as they’re legal. Mindbloom, for example, currently offers a ketamine treatment program that’s available through telehealth in several dozen states and aims to start offering MDMA-assisted therapy late next year after FDA approval is finalized, Beynon said. Psilocybin-assisted therapy could come a couple of years after that, he said.
Nushama, a New York City psychedelic wellness center that offers ketamine-based therapy, delivered through in-person IV infusions, also hopes to expand into MDMA when it’s approved, said co-founder Jay Godfrey.
Treatment without the trip
Still on the horizon: New treatments that could produce psychedelic medicines’ mental-health benefits without the trip. University of North Carolina School of Medicine pharmacology professor Dr. Bryan Roth is leading an effort to create new medications for depression, anxiety and substance abuse that work similarly to psychedelics but without the hallucinogenic, disorienting side effects. His effort is backed by a $27-million grant from the Defense Advanced Research Projects Agency. Such treatments, Roth said, could help the many patients for whom such psychedelic effects are unappealing or ill-advised–such as military service members. “You would never want to give psilocybin or ketamine to somebody who has a gun,” Roth said.
Having worked with Vietnam veterans suffering from PTSD while training as a psychiatrist earlier in his career, Roth said, he’s keenly aware of the need for safe and effective treatments. “There was nothing we could give them for their symptoms,” he said. “The most we could do was give them medications to stop their ability to have dreams, so they wouldn’t have nightmares. That was basically it.”
“Undoing 52 years of propaganda is a heavy lift,” said Nushama co-founder Jay Godfrey.
Costas Picadas
Roth’s team has already developed compounds that have shown antidepressant effects without psychedelic side effects in mice, he said. The team is now working to find a clinical candidate suitable for testing in humans, he said.
Treatments that can help “break bad emotional or psychological patterns without scary, high-friction psychedelic experiences would be a great thing for patients, providers and the healthcare system,” said Mindbloom’s Beynon.
Much more remains to be done to reduce the stigma associated with psychedelics, experts say. It has been 52 years since President Richard Nixon declared drug abuse “public enemy number one,” and billions of dollars have been spent since then telling people that “these medicines are dangerous, that they’re addictive, and that they’ll fry your brains,” Godfrey said. “Undoing 52 years of propaganda is a heavy lift, but one thing I’m optimistic about is that the outcomes are starting to speak for themselves.”
U.S. stocks closed lower on Tuesday, the first day of trading after the long federal Juneteenth holiday. The Dow Jones Industrial Average DJIA, -0.72%
fell about 245 points, or 0.7%, ending near 34,053, while the S&P 500 index SPX, -0.47%
closed about 0.5% lower and the Nasdaq Composite Index COMP, -0.16%
shed 0.2%, according to preliminary FactSet figures. Stocks were lower to start the week, after the S&P 500 on Friday booked a fifth straight week of gains and stocks recently touched their highest level in more than a year. Investors were waiting on Federal Reserve Chairman Jerome Powell’s congressional testimony on monetary policy, which kicks off Wednesday, for more insights into the central bank’s thinking on interest rates, after senior officials penciled in two more potential hikes this year, while skipping a rate increase at its June meeting.
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U.S. stock indexes opened higher on Friday, extending a blistering rally despite lingering worries about the likelihood of more Federal Reserve’s interest-rate hikes after pausing its monetary tightening campaign for the first time in 15 months on Wednesday. The S&P 500 SPX, +0.19%
gained 18 points, or 0.4%, to 4,444, on pace to book its best weekly advance since March. The Dow Jones Industrial Average DJIA, +0.14%
rose 0.4%, and the Nasdaq Composite COMP, -0.04%
was up 0.5%. Federal Reserve Gov. Christopher Waller on Friday said the fallout from several bank failures in the spring is likely to continue to play a role in the central bank’s decision on how much to raise interest rates. Meanwhile, Richmond Federal Reserve president Thomas Barkin said Friday he is willing to support more rate hikes until inflation slows further, as strong consumer spending and labor market keeps upward pressure on inflation.
BlackRock, the world’s largest asset manager, has filed an application for a spot bitcoin exchange-traded fund.
There are currently no such products in the U.S. The SEC approved several bitcoin BTCUSD futures-based ETFs in the past, but has yet to greenlight anything that is backed by bitcoin itself.
U.S. stocks booked big gains on Thursday, a day after the Federal Reserve skipped a June rate hike, but indicated more increases could be on the table this year. The Dow Jones Industrial Average DJIA, +1.26%
jumped about 430 points, or 1.3%, ending near 34,409, according to preliminary FactSet data, while the S&P 500 index SPX, +1.22%
gained 1.2% to score a sixth session in a row of wins and its longest stretch of straight gains since Nov. 8, 2021, according to Dow Jones Market Data. The Nasdaq Composite Index COMP, +1.15%
closed up 1.2%. The rally for stocks comes in the wake of the S&P 500 emerging from its longest bear market in decades, with shares of big technology companies continuing to lead the index higher on Thursday. Its Communications Services segment rose 1.5% Thursday, while the Information Technology sector gained 1.3%, according to FactSet. Critics of the rally have pointed to exuberance around new advances in artificial intelligence helping lift a select set of seven stocks higher. One of those stocks, Microsoft Corp. MSFT, +3.19%
rose about 3.5% to $349, per preliminary data, a record close on Thursday.
Stocks ended the day flat on Wednesday, belying a volatile session that saw big swings as investors digested the Fed’s decision to leave rates on hold while signaling significantly more tightening than market participants expected remains in the pipeline.
“It was a bit of a Jekyll and Hyde meeting, as the Fed delivered the first pause of this tightening cycle while at the same time keeping the door wide open for up to two additional hikes this year,” said Jim Smigiel, chief investment officer at SEI, in emailed comments.
