Your Next Trade Ep113 "Fake Job Data"

Summary

In episode 113 of 'Your Next Trade,' the host covers a range of topics, including market trends, risk-off sentiment, the impact of tariffs, and job market data. The discussion highlights a week of volatility, with significant movements in the S&P 500, technology stocks, and sectors like materials. Key economic data, such as the NFP report and GDP numbers, suggest a slowing U.S. economy, and the Federal Reserve's stance on interest rates is explored. The episode concludes with a look at upcoming market catalysts and seasonal trends, offering valuable insights for traders navigating uncertain times.

Takeaways

• 😀 The market experienced a 'risk-off' week, with a notable decline across various asset classes, especially following tariff news and job data.
• 😀 The US job market showed a significant slowdown, with only 75,000 jobs added, and revisions to prior months' data also revealed weaker growth.
• 😀 Despite the weak job data, there is a larger trend of job market tension due to artificial intelligence and tariff-related uncertainty affecting businesses.
• 😀 US GDP growth remains positive at 3%, but it's largely driven by reduced imports, signaling weaker underlying consumer demand and economic strength.
• 😀 The technology sector continues to outperform, with big tech stocks like Microsoft and Meta showing strong earnings results, while smaller companies are underperforming.
• 😀 The US dollar has strengthened, with the euro weakening due to tariff concerns, while cryptocurrencies like Bitcoin and Ethereum also gave back some gains.
• 😀 Volatility has increased, with the VIX index showing a rise, signaling growing uncertainty in the markets after a period of low volatility in July.
• 😀 The Federal Reserve is expected to cut rates in September, with two additional rate cuts forecasted for 2025, due to weaker-than-expected job market data and inflation trends.
• 😀 Inflation, as measured by the PCE, remains above the Fed's target at 2.9%, contributing to market sell-offs and the Fed's cautious stance on rate cuts.
• 😀 The earnings season has shown mixed results, with sales outperforming expectations but earnings per share (EPS) growth lagging, and materials sectors facing significant underperformance.

Q & A

What is the significance of the NFP (Non-Farm Payroll) data in the US market?

The NFP data is a key economic indicator that reports the number of jobs created or lost in the US economy. It is released on the first Friday of every month and plays a significant role in shaping market expectations regarding economic health, impacting stock and currency prices.

How did the market react to the NFP numbers and the revisions for April and May?

Initially, the market reacted negatively to the NFP data, with a sell-off. The market was particularly focused on the lower-than-expected job creation and revisions to the April and May numbers. President Trump later called the NFP numbers 'fake,' which stirred controversy and led to further market reactions.

What role do tariffs play in the US job market and economic growth?

Tariffs contribute to uncertainty, making it harder for companies to forecast their future earnings and expansion plans. This uncertainty has led to less job creation and slower economic growth. Companies are less likely to hire when they are unsure about future economic conditions.

What does the GDP number released this week reveal about the US economy?

The GDP growth came in at 3%, which seems positive, but a closer look reveals that it was largely driven by a decrease in imports. The underlying US consumer, however, only grew by 1%, suggesting that the economy is not as strong as it might initially appear.

How has the performance of different sectors in the stock market been in the past week?

Overall, the stock market showed negative performance for the week. The S&P 500 was down 2.4%, with sectors like technology outperforming, while smaller stocks and sectors like Russell and Euro stocks underperformed. Materials and cyclical sectors, such as transportation, also saw significant losses.

What impact has the US dollar had on the forex market?

The US dollar has shown strength, trading at 116 against the euro, despite a brief retracement. This is likely due to economic factors like the NFP data and the expectations of rate cuts by the Federal Reserve, which create volatility in the currency markets.

Why is there a shift in focus towards the Federal Reserve's actions following the NFP data?

The weaker-than-expected job creation numbers have increased expectations that the Federal Reserve may cut rates soon. There is now a greater chance of a rate cut in September, which would affect market liquidity and interest rates, making the Fed's actions even more closely watched.

How did the market's volatility change during the past week?

Volatility increased during the past week, with the VIX volatility index rising above 20%. This is partly due to the market's overcomplacency in July, which led to a reversion to the mean in volatility when new catalysts like tariffs and NFP data triggered market movements.

What are the implications of the recent tariff tensions between the US and Europe?

The imposition of a 15% tariff on European goods by the US has weakened the euro and raised concerns over the broader economic impact. The market has reacted negatively to these trade tensions, with the euro showing significant losses against the dollar.

What sectors are currently outperforming, and why?

Sectors like utilities, gold, and the US dollar have been outperforming. This is likely due to the 'risk-off' environment where investors flock to safe-haven assets as concerns over inflation and economic slowdown grow. Additionally, rate cuts are expected, benefiting these sectors.