As the annual Jackson Hole symposium approaches, investors are closely monitoring market signals, particularly in the options market, to gauge expectations.
According to Goldman Sachs analysts, option prices on U.S. bank stocks and most ETFs are currently low relative to historical averages.
However, there is a notable expectation of elevated volatility in the U.S. Dollar and Tech ETFs.
In a note on Wednesday, Goldman Sachs said its economists anticipate that Federal Reserve Chair Jerome Powell will express greater confidence in the inflation outlook during the symposium, while also highlighting downside risks in the labor market.
This aligns with their forecast for three consecutive 25-basis-point rate cuts starting in September.
They note that with the earnings season winding down, investor focus has shifted back to macroeconomic factors, particularly those related to inflation.
The options market reflects this shift, with a notable “kink” in the term structure anticipated for the symposium, as well as around the next inflation report in mid-September.
Goldman Sachs’ analysis of 15 years of market moves around the Jackson Hole meeting reveals that U.S. Financials ETF options, such as XLF and KBE, are priced below historical averages.
They add that specifically, XLF straddles are pricing in a +/-1.5% move, compared to a historical average of +/-2.3%.
Among large-cap banks, Goldman Sachs says options on Bank of America (BAC) and Morgan Stanley (MS) appear particularly attractive, with BAC options pricing in a +/-2.4% move, well below the historical average of 3.9%. Similarly, MS options are priced at a 54% discount to historical costs.
Overall, while some areas of the market appear complacent, there are pockets where options pricing suggests attractive opportunities ahead of the symposium, according to the investment bank.
