Trump's Latest Proposal Has Stock Market Bulls Drooling But Prudent Investors Shuddering

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

Drooling To Drive Stock Market To New Highs

Please click here for a chart of Invesco QQQ Trust Series 1 QQQ.

Note the following:

• First and foremost, our report is politically agnostic.  Please read the following in the spirit that the purpose is to help you get ahead of the curve by cutting through all of the political noise.
• The chart shows our calls to raise cash and hedges the last time the market was near this level.
• The chart shows our buy signals near the Liberation Day lows.
• The chart shows the market is now approaching the prior 2025 high.
• The chart shows the market is at the bottom band of zone 1 (resistance).
• President Trump's latest proposal has momo gurus drooling.  President Trump's proposal is to entirely scrap the debt limit.  The U.S. government borrows and spends like a drunken sailor.  Imagine giving a drunken sailor a credit card with no limit.
• In our analysis, entirely scraping the debt limit will dramatically increase reckless spending by the government.  Further, in our analysis, such reckless spending, if it becomes a reality, will drive the stock market dramatically higher in the short term.  The consequences will be devastating in the long term.
• If President Trump's latest proposal is enacted, our tentative plan will be to bring our Protection Band near zero, aggressively invest in the stock market, and subsequently sell into the strength and ultimately raise our Protection Band to 100% to protect against the long term negative consequences.  
• In our analysis, if the proposal is enacted, down the road, there will be the best opportunity ever to make a fortune by short selling.
• President Trump's latest proposal to scrap the debt limit has support from many Democrats, including Senator Elizabeth Warren.  The only obstacle in the way is a handful of Republicans who are part of the rapidly vanishing species who want fiscal responsibility.  
• In a surprise, the vanishing breed of Republicans have just gained a powerful ally in First Buddy Elon Musk.  Previously, Elon Musk alienated Democrats by spending $250M to support President Trump's campaign.  Now, Musk is alienating President Trump and most Republicans by coming out swinging against the "One Big Beautiful Bill".  In a direct challenge to President Trump, Musk said, "Call your Senator, Call your Congressman, Bankrupting America is NOT ok!  KILL the BILL."  Please see yesterday's Morning Capsule for background.  Musk is now getting hate from both Democrats and Republicans.  Both Republicans and Democrats cannot believe that Musk has the audacity to say, "We should not take American prosperity for granted.  We have to reduce the size of government, reduce spending, and live within our means."  
• Warren Buffett's wisdom shows in a proposal he made in 2011.  His proposal was that if the deficit goes over 3% of the GDP, all sitting members of Congress would become ineligible for re-election. Prudent investors should note – Senator Mike Lee has just announced he is drafting an amendment that would deem members of Congress ineligible for re-election if the deficit is more than 3% of GDP.  Musk has endorsed this amendment.
• The "One Big Beautiful Bill" passed by the House already has a $4T increase in the debt limit.  If the Senate passes the bill, it will be the largest ever increase in the debt limit in a single bill.
• The nonpartisan Congressional Budget Office has determined that President Trump's "One Big Beautiful Bill" will increase the deficit by $2.4T.
• Initial jobless claims came at 247K vs. 235K consensus.  The increase in jobless claims is a negative for the stock market.  However, President Trump's latest proposal is overshadowing this negative development. Initial jobless claims is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation Model.  Adaptive means the model automatically changes itself based on market conditions. 
• The official jobs report will be released tomorrow at 8:30am ET.
• As of this writing, aggressive buying is coming in the stock market on a Chinese state media report that President Trump and President Xi of China had a phone call.

Europe

The European Central Bank (ECB) has cut interest rates to 2% after inflation fell below the target in May.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), and Apple Inc (AAPL).

In the early trade, money flows are neutral in NVIDIA Corp (NVDA) and Microsoft Corp (MSFT).

In the early trade, money flows are negative in Tesla Inc (TSLA).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (SPY) and Nasdaq 100 ETF (QQQ).

Today's Best Finance Deals

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 range bound.

Arora Protection Band And What To Do Now

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