The Fed “Hope” Trade is Back!
It’s all about the jobs this week, but there’s something bigger coming next week. Keep that in mind as the Nasdaq 100 (QQQ) is trading right back at it’s all-time highs. Also, keep in mind that 30% of the Nasdaq 100’s rally has been driven by one stock… NVIDIA.
This morning, ADP released their monthly Private Payroll report. The report is the warm-up for Friday’s non-farms payroll report (jobs report) that is released monthly by the Government.
Let’s get something out of the way. Historically, the correlation between the ADP data and the government’s job data is low. As in there is no correlation. That doesn’t stop investors from reacting to the ADP report as if it forecasted the jobs report on Friday with 100% accuracy.
That’s what happened this morning. ADP private payrolls came in lighter than expected with 152,000 jobs created for the month of May. That compares with expectations of 165,000.
The “miss” on private payroll jobs combines with yesterday’s JOLTS (job openings) report to paint the picture of a tightening labor market.
That, of course, could make Jerome Powell and the Fed happy as it suggests that the economy is slowing, thus allowing them to consider rate cuts in 2024, something that would drive investors into a wild buying frenzy.
Options and futures trades in the bond pits are already adjusting yields to suggest that the Fed will be cutting rates in September and December. That’s a change from what we saw at the end of last week when September when the same traders expected cuts in December only.
Here’s why it matters today.
Investors have been putting money into the market for the last 3-6 months as they “hope” that rates were going to start falling early in 2024. That hasn’t happened.
Those same investors are starting to get nervous as the Fed signals that they are prepared to wait as long as needed to make sure that inflation is under control.
Another jobs report “miss” – April’s job report already missed - would make investors feel like the Fed will have to drop rates sooner rather than later.
Here’s what really matters.
On Tuesday and Thursday of next week we’ll get the real story on inflation as the CPI and PPI reports for May will be released. This is what matters the most to the Fed, much more than the jobs report or this morning’s ADP.
The Nasdaq 100 is trading more than 1% higher after this morning’s ADP report with 76% of the 100 companies trading higher as the market opens, which is a better representation of breadth for the index.
Bottom Line:
Today’s ADP report will help maintain stocks ahead of Friday’s jobs report but we’re going to see investors stay cautious until next week’s CPI and PPI reports are released.
BitCoin is Ready for its Next $10,000 Price Rally
Bitcoin appears ready to set itself on autopilot to $80,000 as the cryptocurrency is clearing $70,000 with a bullish tailwind.
For the last three weeks, Bitcoin ($BTCUSD) has been trading in a tight price range as the crypto bounced between $67,000 and $70,000. The move was a strong consolidation as Bitcoin’s bullish trendlines have been shifting into another intermediate-term bullish trend.
Looking at the trendlines that matter, the 20- and 50-day moving averages for Bitcoin are in short- and intermediate-term bullish trends as both are trending higher. Historically, a rising 50-day moving average forecasts higher prices over the next 4-6 weeks.
In addition, we’ve seen a bullish “Silver Cross” pattern form on Bitcoin.
The pattern is formed when the 20-day moving average crosses above the longer-tracking 50-day moving average.
The last Silver Cross pattern on Bitcoin happened on February 12, just as the crypto was passing through the $50,000 price level.
Round numbers are always considered significant. Whether it’s a stock crossing through $100 increments or Bitcoin crossing above $10,000 increments, the market sees these as psychological hurdles. As a result, we tend to see investors chase prices higher after these mile markers are crossed.
What’s the “Trigger Price to Watch?
A move above $72,000 will take out the highs from just a few weeks ago and open the gates on the short-term rally to $80,000, an 11% run that is likely to happen over the next two weeks.
There are a number of ways to trade this rally including ETFs like the Ark 21 Shares Bitcoin ETF (ARKB). Options traders are able to leverage the rally using call options on the Proshares Bitcoin Strategy ETF (BITO), which closely mimics the price movement of Bitcoin.
It’s too Late for Low Interest Rates to Save this Stock
If you own a camper or RV you’re going to know exactly what I’m talking above here.
Thor Industries – manufacturer of RV’s, campers and luxury motor coaches among other recreational items – announced their earnings today, and you could see these results coming from miles down the road.
The company beat their earnings and revenue targets for the quarter, but it came with a catch.
The company lowered their guidance for both earnings and revenue for the rest of the company’s fiscal year. The move is a sign that the company is finally cracking under the pressure of inflation and high interest rates, a deadly combination for any consumer discretionary stock.
Thor and Winnebago (WGO) stocks have spent the last year trying to clear a backlog of inventory from their books.
Both companies accelerated their manufacturing as consumer demand for RVs after the pandemic combined with incredibly low interest rates to create a perfect opportunity. That opportunity slowed in 2022 as rates started to move higher. At the same time, inventories started stretching the seams of the showrooms and sales lots.
Now, Thor is dealing with the hangover.
Economists aren’t expecting rates – the biggest variable in the RV game – to start normalizing until late 2025. That means that Thor and other large ticket price manufacturers should expect a consumer headwind when it comes to clearing inventory and new products.
Sidenote, another dynamic that the company is dealing with is that buyers have been saturated. Simply put, if you wanted an RV after the pandemic you already own it. That, along with the fact that travelers are opting for Air travel and resorts over road trips (the road trips were very popular initially after the pandemic) means there are fewer buyers in the market.
My general rule on consumer discretionary stocks right now is as follows… If you have to sign a loan document to buy a company’s product their stock is going to underperform the S&P 500 in 2024.
Thor is at the heart of that rule.
Shares are breaking into a long-term bear market trend with today’s reaction to the company’s earnings report.
The stock just crossed below the psychologically significant $100 price level and is preparing to move below $90.
With all three of Thor stock’s intermediate-term trendlines in a bearish trend, the stock’s price forecast is lower for the next 4-6 months.
Thor’s current long-term price target is at $75 as the result of this fundamental and technical breakdown.
