The month of June saw stocks skyrocket…
Heck, it was the best performing June the S&P 500 had seen since the 1950s!
And you know what?
If it wasn’t for the Fed, and traders believing that it’s going to cut rates, we probably wouldn’t be sitting near all-time highs right now.
However, Friday’s nonfarm payroll numbers were better than any economist on the street predicted.
They were expecting to see the U.S. job market add somewhere between 135K to 205K new jobs in June.
But when the number was released, and it flashed 224K new jobs stocks started to sell-off hard.
Why?
Well, part of the reason why the Fed is considering a rate cut is that they see the global economy slowing down.
However, if the job market is strong, maybe the economy isn’t as bad as they thought.
And that explains why we sold off yesterday.
As for me, I’ve been stock specific with my options trading…
And staying away from ETFs for now…
But not staying away from paying myself:
With a little bit more than 3 weeks, until the Fed decides what it’s going to do with interest rates, I’ve already started devising a game plan that I think will make a lot of moolah.
But before that, it’s time to go over this week’s Jump, it’s where I do a rundown of the most important economic events, earnings, IPOs, trades I’m in, and stocks I’m watching.
Contents
Why Good News Has Become Bad News
The market has been acting really weird lately… and it shows you how disconnected it’s been in recent weeks.
Yesterday, futures for market indices were lower ahead of the June employment data report, as traders were expecting a strong release… once those numbers hit, the market actually sold off before it caught a bounce.
Now, the jobs report was stellar, as June nonfarm payrolls rose by 224K, while the consensus estimate was around 165K. Looking at the measures, the employment data points showed strong growth month over month… but in the environment, good news has become bad news.
Why?
Well, it all comes back to The Federal Reserve.
You see, traders have been pricing in a rate cut for the July Federal Open Market Committee (FOMC) meeting for weeks… as there have been macro concerns across the board.
In other words, traders have been looking for more bad news surrounding economic indicators and trade… which could cause the FOMC to cut rates.
However, we all know with the FOMC it matters about their actions, not what they say.
Will the Fed Cut Rates?
Right now, the debate has shifted from how many times and by how much will the Fed cut rates to whether they’ll actually even cut rates.
Here’s a look at the daily chart of the 10 Year U.S. Treasury Yield.
As you can see, yields have been weak, which have caused bond exchange-traded funds (ETFs) like TLT and ETF to rise. However, the latest jobs report actually caused an uptick in yield… in turn, it caused TLT to pull back from its recent highs.
That said, there’s going to be a trade in TLT very soon, and if I make any moves… I’ll be sure to let my clients know about them.
Now, I’ll be continuing to monitor the CME FedWatch Tool, as that gives us an idea of what the market’s outlook for a rate cut will be, come the July meeting.
Prior to the jobs report, traders were pricing in a 25.6% probability of a 0.50% rate cut in July… but now it’s dropped to just 4.9%.
Despite the good jobs report, there are other economic indicators the market is focused on… and with that bounce yesterday… it could be a sign that some traders are thinking these data points could come in lower than expectations – putting pressure on the FOMC to cut rates.
There’s something wrong with the economy still… trade talks are still ongoing, inflation has been below the 2% target… and the economy may not be as strong as many think… and I don’t think that’s necessarily good news for some stocks.
I’ve actually placed a bet on a stock that could be affected. You see, with signs of slowing growth, the trucking industry could be hit hard… again.
XPO Logistics (XPO) is one stock I’m bearish on now, and I bought puts the other day.
Here’s the chart I’m looking at.
With XPO pulling back after it got close to a key level… my money pattern showed up, and it looks like XPO could pull back to the gravity line. Now, if you want to learn more about the money pattern and some of Wall Street’s best-kept strategies… then click here to get started.
Moving on.
I’ll be focused on the macros (I’m still going to be looking for stock-specific plays) over the next few weeks… as that’ll give us an idea of the big picture.
That said, let’s take a look at what’s on tap for the economic calendar.
Economic Calendar
Monday, July 8
- 3:00 PM EST Consumer Credit
Tuesday, July 9
- 6:00 AM EST NFIB Small Business Optimism
- 7:45 AM EST ICSC Weekly Retail Sales
- 8:55 AM EST Johnson/Redbook Weekly Sales
- 10:00 AM EST JOLTs Job Openings
- 10:10 AM EST Fed’s Bullard speaks in St. Louis
- 2:00 PM EST Fed’s Bostic speaks in St. Louis
- 4:30 PM EST API Weekly Inventory Data
Wednesday, July 10
- 7:00 AM EST MBA Mortgage Applications Data
- 10:00 AM EST Fed Chairman Powell testifies before House Financial Services Panel
- 10:00 AM EST Wholesale Inventories
- 10:30 AM EST Weekly DOE Inventory Data
- 1:30 PM EST Fed’s Bullard speaks in St. Louis
- 2:00 PM EST FOMC Meeting Minutes
Thursday, July 11
- 8:30 AM EST Weekly Jobless Claims
- 8:30 AM EST Continuing Claims
- 8:30 AM EST Consumer Price Index (CPI)
- 9:45 AM EST Bloomberg Consumer Comfort Index
- 10:00 AM EST Fed Chairman Powell testifies before Senate Banking Committee
- 10:30 AM EST Weekly EIA Natural Gas Inventory Data
- 12:15 PM EST Fed’s Bostic speaks on Monetary Policy at Fiscal Conference
- 12:30 PM EST Fed’s Bostic speaks at Rocky Mountain Economic Summit
- 2:00 PM EST Monthly Budget Statement
Friday, July 12
- 8:30 AM EST Producer Price Index (PPI)
- 1:00 PM EST Baker Hughes Weekly Rig Count
Now, on the earnings front, we’ve got a pretty light calendar this week… but earnings season is approaching very soon, and it’s a good idea to prime yourself and see what’s on the calendar to find potential plays.
Earnings Calendar
Monday, July 8
Earnings Before Open
- AZZ Inc. (AZZ) implying 7.53% move (monthly contracts expiring on July 19). Historical average move 8.95%.
Tuesday, July 9
Earnings Before Open
- Lindsay Corp. (LNN) implying 9.34% move (monthly contracts expiring on July 19). Historical average move 8.92%.
- Pepsico Inc. (PEP) implying 2.49% move. Historical average move 2.89%.
Earnings After Close
- Helen of Troy (HELE) implying 7.04% move (monthly contracts expiring on July 19). Historical average move 11.85%.
- Levi Strauss & Co (LEVI) implying 7.11% move (monthly contracts expiring on July 19).
- WD-40 Company (WDFC implying 5.10% move (monthly contracts expiring on July 19). Historical average move 5.68%.
Wednesday, July 10
Earnings Before Open
- AngioDynamics (ANGO) implying 10.28% move (monthly contracts expiring on July 19). Historical average move 11.87%.
Earnings After Close
- AAR Corp. (AIR) implying 12.24% move (monthly contracts expiring on July 19). Historical average move 8.73%.
- Bed Bath & Beyond Inc. (BBBY) implying 14.63% move. Historical average move 15.99%.
- PriceSmart Inc (PSMT) implying 8.37% move (monthly contracts expiring on July 19). Historical average move 10.58%.
Thursday, July 11
Earnings Before Open
- Delta Air Lines Inc. (DAL) implying 3.55% move. Historical average move 3.88%.
- Fastenal Company (FAST) implying 5.89% move. Historical average move 7.72%.
Friday, July 12
- No notable earnings.
No Notable IPOs for the Week
With so much going on in the markets on the macro front… there’s going to be a lot of opportunities out there, and even if the FOMC decides to cut rates and bonds and stocks run higher… I’ll be ready.
If markets are choppy for a while or stocks start to crash, I also have some strategies for those conditions.
Earnings season is also coming up, and there are going to be a lot of stock-specific plays out there, and this one is going to be exciting.
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