Facing the high levels of the US stock market, Barclays has proposed an intervention strategy: using call options to "bet big with a small investment."

Zhitong App learned that the international major bank Barclays released a heavyweight research report titled "Barclays Global Pulse" this Tuesday. The report advised investors to be "cautious" about buying large-cap tech stocks in the US stock market near historical highs. The analysts at Barclays expressed concerns that the profit margins of these stocks are too high, fearing a possible stagnation or unexpected pullback beyond market expectations. Faced with the US stock market near historical highs, Barclays analysts recommended buying call options on the Pro UltrPro Shrt S&Pro 500 ETF (SPY.US) to intervene in these "narrow leading forces" in a "risk-controlled manner."

Since the bull market in the US stock market since 2023 has been mainly driven by "large tech companies under the AI boom," the bullish sentiment and enthusiasm for investment in the "Magnificent 7" tech giants in the US market remain strong. The Magnificent 7 in the US stock market includes Apple, Microsoft, Alphabet-C, Tesla, Nvidia, Amazon, and Meta Platforms.

Global investors have been flocking to the Magnificent 7 tech giants from 2023 to early 2024, mainly because they are betting on these giants leveraging their massive market size and financial strength to expand revenue using AI technology. In the 23% surge of the Pro UltrPro Shrt S&Pro 500 in 2023, this group contributed about two-thirds, and their contribution to the continuous record highs of the benchmark index in 2024 remains strong.

Barclays still sees a positive trend for tech giants but emphasizes that buying in requires caution. In 2023, large-cap tech stocks in the US stock market saw a historic rebound compared to other sectors. In 2024, these tech giants with high weightings significantly boosted the Pro UltrPro Shrt S&Pro 500 and the Nasdaq 100 index to repeatedly hit new highs this year, with both currently near historical highs.

"So far, we have seen the continuation of this rebound trend. Based on a one-year rolling statistical basis, the 'bubble index' is very close to the historical high point of the dot-com bubble period: around 20.3% on April 8, 1999, and about 18% as of February 22, 2024," Barclays analysts stated in the report. "However, unlike the Internet bubble period, the recent outstanding performance of these tech giants' stock prices is not due to unreasonable valuations, but rather driven by differences in profit growth," analysts said. "Large tech companies have almost single-handedly maintained the performance of the S&P 500 index through their strength, where earnings and stock prices rise together."

Therefore, analysts at Barclays emphasized that although the valuations of large US tech stocks are close to historical highs, this current uptrend is based on actual profit growth, not irrational market speculation.

Barclays' statistical data shows that the latest year-on-year earnings growth rate of the seven major tech giants is as high as 63%, while the year-on-year earnings growth rate of the Pro UltrPro Shrt S&P 500, which does not include all tech stocks, is -2.4%.

Analysts also stated that the global stock market's "enthusiasm" for investments in artificial intelligence peaked shortly after Nvidia's unparalleled performance announcement, contributing significantly to the strong performance of large tech stocks.

"Investors are still very optimistic about this niche market. For example, the Semiconductor Index ETF (SMH.US) and the ETF tracking the Philadelphia Semiconductor Index (SOXX.US) are among the top in our optimism index. The capital inflows received in the past two weeks are the largest in 10 years," Barclays analysts said.

Therefore, Barclays analysts still recommend a "fundamental" bullish view on large tech stocks. However, they are "cautious" in their recent buy recommendations for the seven major tech giants. Analysts stated that this "overly optimistic sentiment and overly crowded profit-taking positions" may trigger a wave of profit-taking, leading to sideways stock prices or even significant technical adjustments.

If you still want to get involved in the historically high US stock market, Barclays suggests: use options to bet big with small stakes

In addition, according to a recent report released by the Wall Street major Goldman Sachs, the Pro UltrPro Shrt S&P 500 does not seem to have peaked and may stabilize near historical highs or continue to rise.

Goldman Sachs' investment strategy expert Scott Rubner stated in the latest research report that it is difficult for the current US stock market to show a topping trend. Rubner wrote in a report to clients on Wednesday: "As expectations for 'Goldilocks' heat up - Goldilocks refers to an economy that is neither too hot nor too cold, retail investors are drawn into this uptrend, prompting Wall Street analysts to quickly raise year-end targets."

Rubner emphasized in the report that the US stock market in March may be "crowded," and the uptrend may appear relatively "weak," but there are no catalysts that could potentially trigger large-scale selling and downward adjustments. Barclays analysts seem confident in their performance expectations for the seven major tech giants led by NVIDIA, the biggest "hero" contributing to the continuation of the bull market in the US stock market in 2024.

Earlier this week, Barclays significantly raised its year-end target price for the Pro UltrPro Shrt S&Pro 500, a benchmark index for US stocks, from 4800 points to 5300 points, mainly due to the expectation that the US stock market will continue to benefit from the robust profit data of large tech companies and the outstanding performance of the US economy beyond market expectations. Barclays also pointed out in the report that if the profit data of large tech companies continues to outperform expectations, the Pro UltrPro Shrt S&Pro 500 could potentially reach 6050 points by the end of the year.

In addition, Goldman Sachs cited relevant data indicating that the "put/call skew" used to measure investor panic levels has significantly decreased.

Barclays analysts added in the "Barclays Global Volatility Pulse" report that it is best to intervene in these "narrow leading forces" through options "in a risk-controlled manner." Barclays recommends using options that offer the potential for high returns as a strategy to deal with potential market volatility while maintaining exposure to the upside potential of these stocks. Barclays advocates seeking profit opportunities in the current market dynamic environment, aiming to balance the desire for returns with the need to manage potential market adjustment risks.

In general, options strategies can flexibly respond to market changes. For example, if the market rises, the value of call options will increase, allowing investors to profit by selling options. Even if the market falls, investors' losses are limited to the initial option premium paid, making options a relatively low-risk investment tool to seize market opportunities. By selecting different strike prices and expiration dates, investors can customize option strategies based on their market forecasts and risk tolerance to effectively control risks.

"Purchase call options on the ETF (SPY.US) tracking the Pro UltrPro Shrt S&Pro 500, with some of the funding suggested to come from the profit funds realized from call options on the Invesco Pro UltrPro Shrt S&Pro 500 equal-weight ETF (RSP.US). The aim is to utilize structured option strategies to take advantage of the relative performance of SPY compared to RSP." "Although the volatility ratio between SPY and RSP has recently rebounded, it remains historically low, especially for shorter-term bonds," Barclays analysts stated.