TL;DR
- The latest U.S. Jobs Report is in, and it’s way above expectations with 336,000 new jobs added for the month of September
- That’s much higher than the 163,000 new jobs which had been expected, showing the economy is still running far hotter than the Fed would like
- Top weekly and monthly trades
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Major events that could affect your portfolio
We’ve mentioned the term ‘soft landing’ a few times here over the last couple of months. And that’s because it’s been looking like the Fed may have achieved the highly improbable; threading the needle between cooling down inflation (and economic growth) without totally crashing the economy in the process.
And it’s not been just us. More and more analysts have been predicting that the Fed may be done with rate hikes, that oil prices are likely to come down and that the employers will be able to take back control of the labor market.
But like Michael B. Jordan in a boxing movie, this economy just doesn’t want to stay down.
Inflation has slowly ticked up month over month since June, and now the latest U.S. jobs report has absolutely smashed expectations. Economists had predicted that the U.S. economy would have added 163,000 jobs in September, but the figures are in and they’re over double that, with 336,000 new jobs for the month.
Not only that, but the numbers for July and August have been revised upwards, adding another 119,000 jobs in total to those months figures. That’s despite continued layoffs.
It’s a sign that the economy remains hot, and with inflation also back on the rise it puts another rate hike from the Fed as high priority. While it might mean more volatility in stocks, investors should pay more attention to the bond markets.
The higher U.S. Treasury yields go, the more money will flow into them from other assets. Pretty quickly, a trickle could become a tidal wave.
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Obviously, mortgages are being heavily impacted by rates. Mortgage demand has fallen to levels not seen since 1996, which is really no big surprise given that rates are the highest they’ve been in over 20 years, nearing 8%.
That’s a big deal for homebuyers, but it definitely doesn’t end there. The finance sector generates massive amounts of revenue from mortgage activity, as do homebuilders, estate agents and home improvement retailers.
This isn’t the first time we’ve mentioned this, but with the latest inflation and jobs numbers, it’s worth mentioning again. Because not only is the situation likely to continue, it’s looking like it could get worse as the Fed may be forced to raise rates again.
But, this isn’t necessarily a doom and gloom situation. Sure, things aren’t looking rosy for these market sectors, but it’s generally when the situation looks the worst that the best buying opportunities present themselves.
As Baron Rothschild ‘tactfully’ said in the 18th century, “Buy when there’s blood on the streets.”
That is to say, sectors that are being beaten down by the current rate environment and a potential recession should be on your watchlist. Not to necessarily buy today or tomorrow, but to look to add to your portfolio at attractive prices, with the view to holding for the long term.
There’s one caveat. It’s important to understand how high rates could impact companies for the long term. Companies that are forced to fund operations through high interest debt now could be saddled with that problem long after rates come down. As always, an investor’s best defense is solid research, and diversification.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
iHeartMedia (IHRT) – The media company is our Top Buy for next week with our AI giving them an A rating in Technicals and Quality Value. Revenue is up 1.5% over the last 12 months.
Digital Brands Group (DBGI) – The clothing brands company is our Top Short for next week with our AI giving it an F rating in Quality Value and Low Momentum Volatility. Earnings per share was -$141.54 over the last 12 months.
GoGo (GOGO) – The inflight internet company is a Top Buy for next month with our AI rating them an A in Growth. Revenue is up 12.2% over the last 12 months.
Western Digital (WDC) – The storage company is a Top Short for next month with our AI giving them an F rating in Quality Value, Growth, Low Momentum Volatility and Technicals. Earnings per share was -$5.44 over the last 12 months.
Our AI’s Top ETF trades for the next month are to invest in VIX futures and natural gas and to short long term Treasuries, European equities and recent U.S .IPOs. Top buys are the ProShares UltraShort 20+ Year Treasury, the United States Natural Gas Fund LP and the ProShares Ultra VIX Short Term Futures ETF. Top Shorts are the WisdomTree Europe Hedged Equity Fund and the First Trust U.S. Equity Opportunities ETF
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