Episode 31: Building Wealth Podcast with Steven Sitkowski
Higher Interest Rates, AI Growth, and How to Choose a Covered Call Strike Price
Higher interest rates and oil prices continue to put pressure on the stock market, but beneath the volatility, several areas of strength remain.
In Episode 31 of the Building Wealth Podcast, Steven Sitkowski examines what's driving the market, why technology and AI continue to stand out, what weakening market breadth could mean, and which economic reports investors should watch next.
He also answers a viewer question about covered calls, explaining how he approaches one of the most important decisions in the strategy: choosing a strike price.
What's Putting Pressure on the Stock Market?
Two major factors remain in focus: oil prices and interest rates.
At the time of recording, Steven notes that the 10-Year Treasury yield had climbed above 5%, while oil remained significantly higher than its pre-conflict level.
Both can have broader economic consequences.
Higher Treasury yields can affect mortgage rates, car loans, credit cards, and borrowing costs. Higher oil prices can add inflationary pressure and increase everyday expenses for consumers.
These factors have contributed to a market that Steven describes as increasingly difficult beneath the surface.
Market Breadth Shows Signs of Weakness
One of the biggest warning signs Steven discusses is market breadth.
For three consecutive weeks, significantly more stocks had declined than advanced. New 52-week lows also substantially outnumbered new highs.
Steven points out that fewer than half of stocks were trading above their 200-day moving average at the time of recording.
That doesn't mean every stock is struggling.
Companies including Micron, AMD, Intel, and Meta posted strong performances during the previous week. But the broader numbers suggest that market gains are increasingly concentrated among a smaller group of companies.
AI Continues to Drive Growth
Artificial intelligence remains one of the market's biggest themes.
Steven discusses continued corporate investment in AI and how that spending is contributing to economic and earnings growth.
Technology remained one of the strongest sectors of the year, up nearly 27% at the time of recording. Nvidia and Meta are among the companies discussed as AI continues to influence corporate spending and investor attention.
Despite concerns elsewhere in the economy, strong corporate earnings have continued to provide an important counterbalance to higher rates and geopolitical uncertainty.
Why Has This Become a Stock Picker's Market?
A rising market doesn't mean every investor—or every stock—is participating equally.
Steven highlights data showing that the percentage of stocks outperforming the S&P 500 has fallen considerably over the past several years.
In other words, a relatively small group of major winners has been responsible for a significant portion of the market's performance.
For investors, Steven argues that this makes understanding how to evaluate individual companies increasingly important.
The opportunity may be there, but finding the stocks driving the market can make a significant difference.
How Do You Choose a Covered Call Strike Price?
Episode 31 concludes with a practical lesson on covered calls.
A viewer asked Steven how he chooses the strike price when selling covered calls.
Steven explains that he generally uses weekly covered calls as an income strategy. The closer the strike price is to the stock's current price, the more option premium the seller can generally collect.
Moving the strike farther out of the money changes the trade-off: there is more room for the stock to appreciate and less chance of having the shares called away, but the premium collected is lower.
Using Nvidia as an example, Steven looks at the stock's current price, option premiums, expected move, trend lines, and potential resistance to determine which strike price could make sense for his strategy.
The objective is to balance two things: potential stock appreciation and premium income.
What Should Investors Watch Next?
The upcoming economic calendar could provide important clues about where markets go next.
Steven highlights several reports, including:
Employment data
GDP
Personal income
Consumer spending
PCE inflation
Weekly jobless claims
Manufacturing data
Unemployment and hourly earnings
PCE is particularly important because it is one of the Federal Reserve's primary measures of inflation.
With interest rates already elevated, new inflation and employment data could influence expectations for future Fed decisions.
Key Takeaways from Episode 31
Higher Treasury yields and oil prices continue to create pressure for the market.
Market breadth has weakened even though major indexes remain relatively strong.
Fewer than half of stocks were above their 200-day moving average at the time of recording.
Technology and AI remain major drivers of corporate growth and market performance.
Strong earnings continue to provide support despite economic uncertainty.
Market performance has become increasingly concentrated among a smaller group of stocks.
Covered call strike selection involves balancing premium income with potential stock appreciation.
Economic data and future Federal Reserve decisions remain important catalysts.
Episode 31 of the Building Wealth Podcast with Steven Sitkowski highlights why looking beyond the major indexes matters.
From interest rates and AI to market breadth and covered calls, understanding what's happening beneath the surface can help investors better interpret changing market conditions and make more informed decisions.
FAQs
What is a covered call?
A covered call is an options strategy where an investor owns shares of a stock and sells a call option against those shares. The seller receives an option premium in exchange for giving the buyer the right to purchase the shares at the specified strike price.
How does Steven Sitkowski choose a covered call strike price?
Steven considers the stock's current price, expected move, chart trend, resistance levels, and available option premium. His goal is to choose a strike that fits his primary objective of generating income while considering the stock's potential movement. Pasted text
What happens when you choose a higher covered call strike price?
Moving the strike price farther out of the money generally provides more room for the stock to appreciate and reduces the likelihood of the shares being called away. However, Steven explains that the trade-off is receiving a smaller option premium. Pasted text
Why are interest rates important for the stock market?
Higher interest rates can increase borrowing costs and affect stock valuations. In Episode 31, Steven discusses the 10-Year Treasury yield and its relationship with mortgage rates, car loans, credit cards, and broader market conditions. Pasted text
Why does Steven Sitkowski describe the current environment as a stock picker's market?
Steven highlights data showing that fewer stocks are outperforming the S&P 500 and that market performance has become increasingly concentrated among a smaller group of major winners. This can make individual stock selection more important. Pasted text
What is the Building Wealth Podcast with Steven Sitkowski about?
The Building Wealth Podcast with Steven Sitkowski helps investors better understand the stock market, investing, wealth building, options trading, and economic trends. Drawing on more than four decades of experience in the financial industry, Steven Sitkowski shares practical market insights, investment education, and strategies designed to help individuals make more informed financial decisions.
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