AI Stocks Ripping, Barn Burner Jobs Report - Could Powell Be Wrong?

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

Barn Burner Jobs Report

Please click here for an enlarged chart of S&P 500 ETF SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that the stock market is rallying on the jobs report.
• The chart shows that the stock market is above the support/resistance zone.
• The just released jobs report is a barn burner. The report is a lot stronger than the consensus.  Here are the details of the jobs report:
  • Nonfarm payrolls came at 254K vs. 135K consensus.
  • Nonfarm private payrolls came at 223K vs. 125K consensus.
  • Average hourly earnings came at 0.4% vs. 0.3% consensus.
  • Average work week came at 34.2 hours vs. 34.3 hours consensus.
  • Unemployment rate came at 4.1% vs. 4.2% consensus.
• At a minimum, this data point shows that Powell could have been wrong. When Powell cut interest rates by 50 bps, he explained it away by predicting labor weakness. The just released jobs report shows that there is no labor weakness.
• Before and after the 50 bps rate cut,  we shared with readers The Arora Report analysis that the data did not support a 50 bps rate cut. Today's jobs report clearly proves that The Arora Report analysis was correct and the Fed may have made a mistake. 
• Bonds are falling on the strong report.
• Stocks are seeing extremely aggressive buying after the report. In the short term, it is bullish in that Powell gave the stock  market a big gift of a 50 bps cut predicting labor weakness, but there is no labor weakness.
• After the jobs report, AI stocks are ripping. In the early trade, buying is extremely aggressive in AI stocks.  
• This data is going to be ammunition for those who have been saying that the 50 bps rate cut was designed to help Harris win the election even though the Fed continues to publicly say that the Fed does not consider politics. Keep in mind, Trump has said that he would not reappoint Powell.
• Adding to the optimism is that dock workers have suspended their strike.
• In the longer term, this jobs data raises the probability that inflation will not come down to the Fed's 2% target and the Fed will once again be proven wrong.
• As a note of caution, this is only one piece of data. At The Arora Report, we will be carefully watching additional pieces of new data as it comes. This is exactly what prudent investors should do.
• ISM Non-Manufacturing Index yesterday came at 54.9 vs. 51.6 consensus. In The Arora Report analysis, this data also shows that the economy is strong.

Magnificent Seven Money Flows

In the early trade, money flows are positive 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 positive in SPDR S&P 500 ETF Trust 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 BTC/USD is seeing buying on strong jobs data.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

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.