Money Flowing Out Of US Stock Market Into Europe, "A Period Of Transition" - Says Trump

To gain an edge, this is what you need to know today.

Money Flowing To Europe

Please click here for a chart comparing SPDR S&P 500 ETF Trust (SPY) which represents the benchmark stock market index S&P 500 (SPX), Select STOXX Europe Aerospace & Defense ETF (EUAD), and SPDR Euro Stoxx 50 ETF (FEZ).

Note the following:

• For the period shown on the chart,  Europe has outperformed the U.S. stock market by 10.39%.  The chart also shows European defense ETF (EUAD) has outperformed SPY by 22.12%.
• Money continues to flow from the U.S. stock market to European stock markets.
• We have previously shared with you the unintended consequence of the Trump-Zelenskyy confrontation.  This was a watershed moment unlike anything else since World War II.  From an investment perspective, the confrontation was a trigger for money to start flowing out of the U.S. and into Europe.
• Increased defense spending in Europe is not a done deal, even though the stock market believes it is, according to the Arora Report analysis.
• Historically, Europe has had difficulty uniting behind increased defense spending.  Further, it must all start from Germany.  The coalition of Friedrich Merz, Germany’s Chancellor-in-waiting, proposes to increase defense spending and also create a $500B infrastructure fund.  For certain reforms, it takes a two third majority in Bundestag. Support of the Greens may become important.  However, the Greens have concerns due to the lack of climate protection measures in new spending.
• President Trump is not ruling out the possibility of a recession.  Trump said, "I hate to predict things like that.  There is a period of transition because what we're doing is very big."
• In the early trade, the U.S. stock market is seeing selling due to Trump's remarks. Our prior call was to buy on Trump's re-election, take partial profits from Christmas to New Year, and take more profits going into Trump's inauguration. 
• We have been sharing with you since November 2024 that when hopium met reality the stock market would have a problem.  This is exactly what is happening right now.
• If the stock market falls further, momo crowd accounts will start getting more margin calls.  Such margin calls will accelerate selling.  Momo crowd accounts are already decimated because of their concentration in highly speculative stocks.

China

For the first time in a year, inflation in China is below zero.  Here are the details:

• CPI came at -0.2% month-over-month vs. -0.1% consensus and -0.7% year-over-year vs. -0.4% consensus.
• PPI came at -2.2% year-over-year vs. -2.0% consensus.

Magnificent Seven Money Flows

In the early trade, money flows are negative in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA Corp (NVDA), and Tesla Inc (TSLA).

In the early trade, money flows are negative in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin saw selling yesterday.  The dip is being bought.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.