Tariff Relief Ahead, Investors Like Trump's Speech But ADP Throws Cold Water On Budding Stock Rally

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

Tariff Relief Ahead

Please click here for an enlarged chart of Invesco QQQ Trust Series 1 (QQQ).

Note the following:

• The purpose of the chart is to illustrate the extreme volatility under the surface.  Investors need to understand this volatility to make good decisions.
• The chart illustrates the wide range in which the stock market is trading.
• Tariff relief for Mexico and Canada is ahead, as early as this afternoon.
• In The Arora Report analysis, it appears that the relief may include the following:
  • Auto companies such as Ford Motor Co (F) and General Motors Co (GM) may be exempt.
  • Many other companies may also be exempt.
  • The tariff rate may be reduced from 25%.
• There are crosscurrents this morning in the stock market.  It is important for investors to set their politics aside, go into neutral, and examine how institutions are investing.
  • Institutions are buying on the prospect of tariff relief.
  • Institutions loved Trump's speech, are excited, and are buying stocks.
  • ADP data is throwing cold water on the bullishness.
• Automatic Data Processing Inc (ADP) is the largest private payroll processor in the country.  ADP uses its data to provide a glimpse of the official jobs report that will be released on Friday at 8:30am ET.  The just released ADP data is the weakest in recent memory by some measures.  ADP Employment Change came at 77K vs. 145K consensus.
• ISM Services data will be released at 10am ET and may be market moving.
• The Fed's Beige Book will be released at 2pm ET and may be market moving.
• Expect volatility to continue based on the data and what Trump says.
• Investors who waited for Trump's speech to implement changes in the protection band may take a second look at the chart to understand the volatility and make changes based on a personal comfort level with volatility.

Germany

Historically, the German government has been the most fiscal responsible in the entire world.

Friedrich Merz, Chancellor-In-Waiting, is proposing to amend the constitution to exempt defense spending from fiscal spending limits.

In The Arora Report analysis, this is a very positive development for European defense stocks.  As full disclosure, the Arora Report gave a prior signal on European defense ETF Select STOXX Europe Aerospace & Defense ETF (BATS: EUAD) in The Arora Report’s ZYX Allocation and one of the largest  European defense companies BAE Systems PLC – ADR (OTCMKTS: BAESY) in The Arora Report’s ZYX Buy.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Meta Platforms Inc (META), NVIDIA Corp (NVDA), and Tesla Inc (TSLA)..

In the early trade, money flows are neutral in Alphabet Inc Class C (GOOG) and Microsoft Corp (MSFT).

In the early trade, money flows in SPDR S&P 500 ETF Trust (SPY) and Nasdaq 100 ETF (QQQ) were positive before release of ADP data but have turned negative after the ADP data.

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 is seeing buying.

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 is very popular.  The protection band 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.