TL;DR
- Both the ADP Jobs Report and US Bureau of Labor Statistics Jobs Report showed much better than expected figures in April
- The Fed raised rates by 0.25 percentage points and suggested the hike cycle may be ending
- While Jay Powell has said there won’t be any rate cuts this year, the futures market disagrees
- First Republic Bank has been taken over by JPMorgan after being closed by the FDIC, but it’s not the only bank working through challenges
- Top weekly and monthly trades
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Major events that could affect your portfolio
There’s been a lot of economic data and announcements to digest this week, the most high-profile of which are the Fed’s latest rates announcement, and both the ADP Jobs Report and U.S. Jobs Report.
Onto the Fed first, they met the markets expectations with an increase in rates by 0.25 percentage points, though the tone of the commentary has significantly changed. Jerome Powell has strongly suggested that we’ll see a pause in rate hikes next month, and that it could even be the last rate rise that we see for the rest of the year.
He stopped short of saying there’ll be any rate cuts in 2023, but the futures markets believes there is a 70% chance we’ll see a rate cut in September, and potentially 0.50 to 0.75 percentage point cuts in total by the end of the year.
That’s hard to believe if you’re looking only at the labor market, as both the ADP jobs report and the US Bureau of Labor Statistics (BLS) jobs report came in way above expectations. The consensus forecast for ADP’s April figures had 148,000 new jobs being added, with the final number coming in at over double that at 296,000.
The BLS figures were released Friday, with 253,000 new jobs added in April against a consensus forecast of 180,000.
With such mixed economic data at the moment it leaves a lot up in the air for investors, who should be preparing their portfolios for any eventuality.
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It’s been another “interesting” week for banks and big oil. We’ve been shown that it’s not the end of instability in the financial sector, as First Republic finally went under and was taken over by JPMorgan. The regional bank had experienced a 40% drop in deposits after the collapse of Silicon Valley Bank, as customers ran for the exits to bigger competitors.
That’s an incredibly difficult hurdle for any bank to overcome, and after a plummeting stock price and multiple trading halts, it was finally closed down by the FDIC. Other regional banks, like Pacwest and Western Alliance, saw their stock price smashed as a result too, although they bounced strongly on Friday morning.
But it’s not just small banks under fire, with Morgan Stanley this week announcing layoffs of 3,000 workers. They aren’t alone, as Goldman Sachs and Citi have announced similar cuts so far this year.
This round of downsizing in the banking sector comes as a direct result of the high levels of volatility in the market and the difficult funding environment, causing a slowdown in IPOs and mergers and acquisitions activity.
If the economy continues to head towards a recession, this is likely to be a trend that continues.
On the other hand, oil companies announced big wins in their Q1 earnings reports, with Exxon Mobil and Chevron announcing big earnings beats, with profit levels almost double compared to the average over the last decade.
It’s a sign of the market we’re heading into. Volatility will likely be the overriding theme, but some sectors will be able to weather the storm better than others.
This week’s top theme from Q.ai
By now it’s pretty obvious that we’re in a real muddle of a financial market. Some economic data is bad, some is actually pretty good and a lot of it is somewhere in between. The Fed is saying there won’t be a rate cut this year, but the futures market is saying there will be.
For investors, it’s really difficult to pick out what’s going to happen and how to position your portfolio. Moving out of the market completely is never a good idea, because missing just a few of the best days can have devastating consequences for your long term returns.
Luckily, there are things you can do. To start with, you can invest in assets that are traditional hedges against market volatility and uncertainty. Specifically, our Precious Metals Kit invests into gold, silver, platinum and palladium, with our AI predicting which of these is likely to perform the best in the coming week, and then automatically rebalancing in line with these projections.
Alternatively if you want to stick with a mainstream portfolio of stocks and bonds, Portfolio Protection can be a powerful addition to your investments.
For this, we harness our AI to assess your portfolio’s sensitivity to a range of different risks, such as interest rate risk, overall market risk and even things like oil price risk. It then automatically implements sophisticated hedging strategies to help protect against them. When markets are good, it aims to fade into the background completely so you can keep most or all of your returns.
It’s well worth considering with volatility and recession on the horizon, and it’s available on all of our Foundation Kits.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
Napco Security Tech (NSSC) – The security systems company is one of our Top Buys for next week with an A rating in our Technicals and Growth factors. Revenue grew 25.6% in 2022.
Arrowhead Pharmaceuticals (ARWR) – The pharmaceutical company is our Top Short for next week with our AI rating them an F in Quality Value, Low Momentum Volatility and Growth. Earnings per share was -$1.42 in 2022.
Titan International (TWI) – The wheel and tire manufacturer is a Top Buy for next month with a A rating in Quality Value. Earnings per share was up 207.8% in Q1.
Bloom Energy (BE) – The energy company is our Top Short for next month with our AI rating them an F in Quality Value. Earnings per share was -$1.62 in 2022.
Our AI’s Top ETF trades for the next month are to invest in Chilean stocks and oil & gas and to short US telecommunications, long dated US Treasuries and US hybrid securities. Top Buys are the iShares MSCI Chile ETF, the ProShares UltraShort 20+ Year Treasury and the SPDR S&P Oil & Gas Equipment and Services ETF, and the Top Shorts are the iShares US Telecommunications ETF and the iShares Preferred and Income Securities ETF.
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