Wage Growth Slows

To gain an edge, this is what you need to know today.

Reduce Hedges And Deploy Cash

Hedges are profitable. It is time to take more partial profits. It is time to deploy slightly more cash.

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

The chart shows that the stock market may attempt to break out of consolidation and run towards the resistance zone. RSI on the chart shows that the stock market is set to run up.
There is aggressive buying in stocks, bonds, gold, silver, and bitcoin on the jobs report. Investors are celebrating slower wage growth and lower than expected job creation. Here are the details:
- Non-farm payrolls came at 175K vs. 250K consensus.
- Private non-farm payrolls came at 167K vs. 175K consensus.
- Average hourly earnings came at 0.2% vs. 0.3% consensus. On an annualized basis, this wage growth is 2.4%. This is good news on the inflation front.
With Powell itching to cut rates, this report is going to give Powell the ammunition he needs.
The stock market always has crosscurrents. One of the negatives from this jobs report is that with slowing jobs growth and slowing wage growth, the consumer may stop spending excessively. The U.S. economy has stayed out of recession because of excessive consumer spending. If the consumer stops spending excessively, earnings growth will be lower than the current Wall Street consensus. In turn, it will hit the stock market negatively.
Apple Inc AAPL earnings were roughly inline with the consensus but worse than whisper numbers. Here are the two most important pieces of data:
- Q2 iPhone revenue was $45.96B vs. $51.3B last year.
- China sales are down 8%.
In The Arora Report analysis, Apple is running up and creating positive sentiment in the entire stock market for the following reasons:
- Apple announced the largest buyback in corporate history. It is $110B.
- In his comments, Tim Cook’s tone was more optimistic than we have heard thus far.
- Cook is optimistic on China in spite of the data showing reasons to not be optimistic.
- In a departure from Apple’s standard practice, Apple gave guidance for the June quarter. Apple projects low single digit growth. Consensus for sales is $82.89B. It appears Apple departed from its standard practice because Cook sees the need for him to do everything he can to run up AAPL stock.
- An AI announcement is likely on June 10 at WWDC.
Amgen Inc AMGN, a component of DJIA, is running up on the company teasing about good data from its weight loss drug from Phase 2 and plans to move to Phase 3. The move up in AMGN is helping DJIA run up. Investors are selling stocks of competitors Eli Lilly And Co LLY and Novo Nordisk A/S NVO.

Buy Zones And Buy Now Ratings

Consider continuing to hold good strategic positions.

Consider lightly buying, if underinvested, when stocks and ETFs fall in the buy zones. The Arora Report's Complete Model Portfolio updates with new zones are coming.

Nibbling

Consider not nibbling at this time.

Nibbling refers to buying very small quantities, often in existing long-term positions with the intention of exiting these additions in the short term. It is similar to trade around positions but without specific signals.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, Tesla Inc TSLA, and AAPL.

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks in the early trade. Smart money is buying stocks in the early trade.

Gold

The momo crowd is buying gold in the early trade. Smart money is buying gold in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV.

Oil

The momo crowd is buying oil in the early trade. Smart money is buying oil in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD has run up above $60,000 on weaker jobs report.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

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