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As another busy, though short, week comes to a close, I want to start things off a little differently with this newsletter. Instead of diving into earnings trades or the complexities of options strategies and Greeks, I want to talk about summer getaways and the importance of balance in our lives.
With the markets closed on Thursday for the 4th of July holiday, it was the perfect time to step back and reflect. This week, our attention was on several key topics: the latest Powell speech, unemployment data, manufacturing data, and inflation data from Europe, along with the anticipation of the upcoming earnings season. Globally, inflation is trending lower, and there are clear signs of a cooling economy based on housing and retail data. Manufacturing data remains stable, all pointing toward a soft landing. While understanding the economic landscape is crucial, I also want to emphasize the importance of clarity and balance in our personal lives.
My favorite vacations are those brief escapes with my wife. This time, we went to Miami, leaving the kids behind. It was a joy to sit on the beach, play cards, read a book, and enjoy lunch by the ocean. These small, tranquil moments are what I cherish the most.
Our youngest son is at camp, and I miss him dearly. We can only send him letters and see his photos online. My wife and I spent hours on the beach looking at his pictures. Meanwhile, our youngest daughter is at debate camp at the University of Michigan. Luckily, we can talk to her on the phone. Driving her to campus was a nine-hour journey, giving us precious time to discuss her dreams, hobbies, books, and the inevitable friends' drama.
As I get older, I find myself valuing these small moments more and more. It’s not just about the big achievements or milestones, but the everyday interactions that bring joy and meaning to life. For traders, maintaining balance in life is crucial. The constant pressure of the markets can be overwhelming, and it's easy to get caught up in the chase for profits. However, taking time to recharge and reconnect with loved ones is essential for long-term success and personal well-being.
Balancing work and personal life allows us to approach our trading with a clearer mind and renewed energy. It’s about creating a sustainable rhythm that includes time for relaxation, reflection, and connection with those we care about. This balance not only enhances our performance but also enriches our lives, making us better traders and happier individuals.
So, as we navigate the ups and downs of the market, let’s also make time for the moments that matter most. Cherish your loved ones, take those much-needed breaks, and remember that a balanced life is a fulfilling one.
Wishing you all a happy 4th of July weekend and a fantastic summer!
Recent Trade Review
Based on the macro analysis I gathered this week, I successfully executed a long stock trade on Synchrony Financial ($SYF). This trade was sourced from YellowTunnel's Aggressive Power Trader services, and the insights were shared during last Tuesday's recording of our live trading room session here.
Synchrony Financial ($SYF) showed significant potential as the APT model identified extreme demand for call buying. This signal indicated strong upward momentum, making $SYF an excellent candidate for a long stock position. The major advantage of our paid services over the free ones is the timely SMS messages that provide precise entry and exit points. For this particular trade, the alert system was crucial in ensuring optimal timing, allowing us to capitalize on the bullish sentiment surrounding Synchrony Financial.
The strategic entry based on the APT model’s signal of high call buying demand and the timely exit alerts provided through our SMS service ensured a profitable outcome. This highlights the importance of leveraging advanced trading models and timely information for making informed decisions.
By integrating macroeconomic insights with robust trading strategies, we continue to achieve significant gains. This recent success with $SYF exemplifies the value of our comprehensive approach to trading.
For more detailed analyses and to participate in our live trading sessions, be sure to check out the recordings and join our Aggressive Power Trader services for exclusive benefits.
CURRENT TRADING LANDSCAPE
As traders returned from the Fourth of July holiday break, stocks showed mixed performance on Friday. The S&P 500 and Nasdaq were on pace to close at new record highs, while the Dow fluctuated between slight losses and gains throughout the day. Despite these mixed signals, I remain optimistic about the market's prospects. Inflation is aligning with expectations, and the earnings season is outperforming initial forecasts. However, some risks persist, such as a cooling economy, rising unemployment, and the potential failure of small banks due to their exposure to commercial and residential real estate.
For the SPY, I expect the rally to be capped at $550-$560 levels, with short-term support at $520-$530 over the next few months. Overall, I anticipate the market to post higher highs and higher lows, driven by favorable economic data and robust corporate earnings. For reference, the SPY Seasonal Chart is shown below:
At the start of this shortened trading week, coinciding with the beginning of Q3, U.S. markets opened on a cautiously optimistic note. Despite early gains, stocks faced midday turbulence before ultimately closing with modest gains. Key economic indicators and geopolitical developments significantly influenced the day’s trading.
The Institute for Supply Management reported that the Purchasing Managers Index (PMI) fell to 48.5 in June, below economists’ expectations of 49.1. This marked the third consecutive month of contraction, highlighting ongoing challenges in the manufacturing sector. A PMI reading below 50 typically indicates a contraction in manufacturing activity, raising concerns about the broader economic outlook.
On Wednesday, the S&P 500 and Nasdaq Composite closed at record levels, wrapping up the holiday-shortened session on a high note. In contrast, the Dow Jones Industrial Average ended slightly lower. All U.S. markets were closed on Thursday in observance of the Fourth of July but resumed normal trading hours on Friday, with investors eagerly awaiting the June employment report from the Labor Department.
In Europe, market sentiment varied as inflation trends diverged across major economies throughout June. Countries like France and Spain experienced moderated inflation rates, while Italy saw a modest increase in price levels. These variations influenced European market dynamics, contributing to mixed trading sessions amid global economic uncertainties.
As we enter the third quarter, several factors are capturing investor attention. Key among them are the latest Federal Reserve speeches, including remarks from Chair Jerome Powell, along with unemployment, manufacturing, and inflation data from Europe. The upcoming earnings season also looms large. Globally, inflation is trending lower, and there are signs of a cooling economy based on housing and retail data, although manufacturing remains stable. These indicators suggest a potential soft landing, with the primary risk being an uptick in unemployment.
Federal Reserve Chair Jerome Powell recently noted that while the latest inflation data is promising, more evidence is needed to confirm a sustainable trend before considering interest rate cuts. This week, global monetary policymakers, including Powell, gathered in Portugal for the European Central Bank’s annual Forum on Central Banking.
Powell emphasized the importance of accurately understanding underlying inflation, citing the strength of the U.S. economy and labor market as reasons for a cautious approach. The Federal Open Market Committee (FOMC) has maintained the federal funds rate target between 5.25% and 5.5% since July 2023, with their next meeting on July 30-31. Current market pricing suggests less than a 10% chance of a rate cut in July, but a 69% chance of a reduction in September.
Additionally, Powell highlighted that a gradual cooling of the labor market is positive and does not anticipate a sudden spike in unemployment. However, he acknowledged that a faster-than-expected weakening in the labor market could prompt rate cuts.
Heading into Thursday, global government bond yields fell amid cooling inflation data from the eurozone and weakened U.S. economic data. This decline in bond yields reflects growing expectations for central banks to lower interest rates, boosting stock markets on both sides of the Atlantic. Mining stocks outperformed due to a surge in commodity prices, spurred by a weakened U.S. dollar, while technology shares also performed strongly amid the ongoing AI frenzy.
The U.S. services sector unexpectedly declined in June, suggesting a broader cooling of the economy. The Institute for Supply Management’s services-activity index decreased to 48.8 from 53.8 in May, falling below the 50 mark that divides expansion from contraction for the second time in three months.
The 10-year Treasury yield continues to be volatile, trading in a range between 4.2% and 4.7%. This week, it is retesting the 4.3% level as markets remain near all-time highs. Bond yields pulled back after the latest economic data came in mostly cooler than expected.
Value stocks and interest-sensitive stocks are rebounding, with the QQQ and SPY near all-time highs. Debate continues around potential interest rate cuts this year, driven by data. The 10-year yield broke below the key 4.5% level and continues to trade between 4.3% and 4.7%. Recent U.S. data indicates labor markets could be cooling faster than forecast, with ADP’s employment report coming in lower than expected and weekly jobless claims—a proxy for layoffs—higher than forecast. On Friday, the yield on the benchmark 10-year Treasury slipped to about 4.28%.
Friday’s key report showed the U.S. added 206,000 nonfarm jobs last month, according to Bureau of Labor Statistics data. This surpassed the consensus forecast of 189,500 jobs. Employers added 206,000 nonfarm payrolls in June compared with 218,000 in May, which was revised down from 272,000. The unemployment rate rose to 4.1% in June from 4% in May. Treasury yields extended recent losses as U.S. job creation cooled while the unemployment rate ticked higher. Fed-funds futures showed chances of a September interest-rate cut increased slightly after the June jobs report included serious revisions to previous numbers. June’s payroll gains may have been stronger than anticipated, but signals of a cooling U.S. labor market could prompt Federal Reserve officials to cut interest rates as early as September.
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Sector Spotlight
In the midst of fluctuating market conditions and mixed economic signals, certain sectors are showing resilience and potential for strong returns. As we navigate through Q3, it's essential to identify areas where favorable trends and robust data align to create attractive investment opportunities. This week, one sector in particular stands out as a promising candidate for bullish trades, given the current economic landscape.
Given the recent macroeconomic data and trends discussed, now might be an opportune time to consider buying into the financial sector. The Financial Select Sector SPDR Fund (XLF) offers a diversified exposure to this sector, encompassing major banks, insurance companies, and financial services firms.
The financial sector has shown resilience amid economic fluctuations. Inflation aligning with expectations and a better-than-forecast earnings season position financial companies to benefit from a stable economic environment. The Federal Reserve's cautious stance on interest rates suggests the potential for stable or slightly declining rates, enhancing profitability for banks through improved net interest margins. Additionally, the positive performance of financial institutions indicates broader market stability and growth potential. Signs of a soft landing in the economy, characterized by lower inflation and stable manufacturing data, create a conducive environment for financial stocks, supporting financial stability and growth without a sharp downturn.
TRADE OF THE WEEK: Synchrony Financial (SYF)
Synchrony Financial (SYF) is a leading consumer financial services company. It offers a wide range of credit products through its partnerships with national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers. The company operates through three segments: Retail Card, Payment Solutions, and CareCredit, providing private label credit cards, promotional financing, and installment lending.
Synchrony Financial stands out as a compelling investment choice under the current market conditions. The recent macroeconomic data suggests a potential soft landing for the economy, with inflation trending lower and manufacturing data remaining stable. This environment is increasingly favorable for financial services companies like SYF. Despite slight cooling, consumer spending continues to support credit card usage and financing solutions provided by Synchrony, positioning the company well during the strong start of the earnings season. Consumers' ongoing utilization of credit for purchases is expected to keep SYF's earnings robust.
The Federal Reserve's cautious approach to interest rate cuts, coupled with stable or slightly declining interest rates, supports SYF's business model by reducing funding costs and supporting higher net interest margins, thus boosting profitability. Moreover, our A.I. models have identified SYF as a stock with a strong demand for call buying, indicating bullish sentiment. This advanced analysis, combined with favorable economic conditions, reinforces the potential for SYF to perform well in the near term.
By leveraging current market conditions and the robust analytical support from our A.I. models, investing in Synchrony Financial offers a promising opportunity for gains. This blend of macroeconomic stability, strong corporate performance, and cutting-edge technology provides a compelling case for considering SYF in your portfolio this week.
This week, I’ll be adding Synchrony Financial (SYF) to my portfolio!
And one more thing! Our track record speaks for itself from the standpoint of a Winning Trades Percentage, Average Return Per Trade, and Net Gain. Just take a look:
The consistent performance of our services is just incredible. My historical stellar performance is made possible by being right on 84.28% of all trades that I made, with an average profit of 37.24% per trade on our collective trade recommendations. To my knowledge, this trading performance is one-of-a-kind and stands alone in the marketplace for superior trading advice where our numbers and results speak for themselves.
Visit our website at www.yellowtunnel.com and select one of our services as your default trading system. With our AI-powered platform, let's make 2024 the most profitable year yet for your portfolio! Remember to conduct thorough research and assess your risk tolerance before making any investment decisions.
One more thing, I've had the opportunity to take additional action with a great organization supporting families in Ukraine directly. Gate.org is a foundation where fundraising is held for specific families, allocating funds to multiple families currently living in Ukraine. I am on the board of directors for this great initiative and encourage everyone to check it out and donate if possible. The war in Ukraine is escalating and families are being negatively impacted and displaced daily. To learn more about this initiative to help families, please see the link below:
Wishing you a week filled with resilience, growth, and prosperous opportunities!