Chris Murphy, co-head of derivatives strategy at Susquehanna, said investors should increase hedging as the summer draws to a close as market uncertainty increases due to stronger S&P 500 index momentum, macroeconomic risks and a sustained rise in oil prices. Murphy said that after a strong season, the S&P 500 is “starting to become increasingly vulnerable to correlation shocks.” “Investors are entering the summer with crowded momentum exposures, large-cap tech stock positioning, thin asset manager capital, and an increasing reliance on a narrow group of leaders in AI, semiconductors and mega-caps,” he said. The tech sector had its strongest two-month performance since 1990, which helped propel the S&P 500 up, but that momentum “won’t last forever,” Murphy said. Murphy noted that across Nvidia, Broadcom, Invesco QQQ Trust, the VanEck Semiconductor ETF, and the broader Top 50 S&P constituents, upside call skew has risen sharply, with prime book momentum exposure at an all-time high, while large-cap tech positioning is near the 95th percentile. Additionally, Murphy said current macroeconomic risks require further hedging, given that sustained rises in oil prices are likely to weigh on consumer sentiment in the coming months, while lower savings rates could signal another sign of vulnerability. “For investors who have benefited from the AI- and tech-driven bull market, late summer may be a reasonable time to add protection while the market is still calm, rather than waiting for volatility, correlation, and put skew to reprice after a serious loss of momentum,” he said.
