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Beware of increased stock market volatility, Delta has slowed the economy: Goldman

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August marked the seventh straight month of gains for the S&P 500 (^GSPC) as investors ignored softening U.S. economic data at the hands of the COVID Delta variant. 

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But investors may be wise to stop ignoring the data, and position for a September rife with market volatility, says the team at Goldman Sachs. 

“General mobility statistics have weakened, full-service restaurant indicators have softened, travel intentions appear to have faded and retail traffic declines (off of 2019 levels) have re-accelerated,” Goldman Sachs strategist Jason English pointed out in a new research note on Wednesday. 

English said his colleague at Goldman is now recommending loading up on options to profit from renewed concerns on the economic recovery. 

“The setback has injected a higher degree of uncertainty into the fundamental outlook for many sectors that our options analyst, John Marshall, does not believe is fully reflected in the options market. As he details within, options prices for stocks and sectors related to the reopening are near pandemic lows despite the rise in cases and fading mobility indicators. He recommends buying options to position for an increase in volatility over the next month,” English notes. 

To English’s point, economic data of late has hardly been inspiring — despite the ongoing bullishness in equities markets. 

As Yahoo Finance’s Myles Udland writes in the Morning Brief newsletter, consumer confidence has taken a hit amid the spread of the Delta variant and some inflation pressures.

Retail sales announced earlier this month showed sales fell 1.1% in July. Meanwhile, orders for cars, appliances and other durable goods dropped slightly in July. And some economists Yahoo Finance has talked with expect Friday’s August jobs report to fall well short of consensus estimates

“High frequency labor market data are signaling a marked slowdown in employment activity in the August payroll survey week, suggesting downside risk to our forecast,” warned BofA Securities U.S. economist Joseph Song on Yahoo Finance Live.

If closely watching economic data isn’t your thing, keep in mind that September historically hasn’t been great for stocks. 

Since 1950, the S&P 500 has seen negative returns in September, according to data from LPL Financial

“Although this bull market has laughed at nearly all the worry signs in 2021, let’s not forget that September is historically the worst month of the year for stocks,” said LPL Financial chief market strategist Ryan Detrick. “Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September.”

Sounds like an ideal time to buy those stock options Goldman is referencing. 

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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