Core PCE Hotter; More Fuel For Hot AI Trade - Trump Says 'A Very Big One' Is Ahead

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

More Fuel Coming For Hot AI Trade

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

Note the following:

• The chart shows SPY has hit a new all time high breaking out above zone 1.  Zone 1 was previously resistance and will become support if the breakout is sustained.
• Prudent investors will be watching the volume and the velocity of the move today.
• RSI on the chart shows that the stock market is slightly overbought and still has room to run.
• There is more fuel for the hot AI trade.  There is a report that President Trump is planning executive orders to boost AI in the U.S.   President Trump previously ordered the production of an AI Action Plan to make "America the world capital in artificial intelligence."  The plan is due by July 23, which the White House may declare AI Action Day.
• Adding to the extreme bullishness in the stock market is a statement from President Trump on trade deals, "Everybody wants to make a deal and have a part of it… we just signed with China yesterday. We are having some great deals. We have one coming up, maybe with India. A very big one. Where we're going to open up India. In the China deal, we are starting to open up China."
  • The U.S. and China have finalized details of a trade deal framework.  China has agreed to loosen rare earth mineral export restrictions in return for the U.S. removing countermeasures.
  • Indian trade negotiators arrived in the U.S. today to continue talks.
  • Commerce Secretary Lutnick indicated trade agreements are close with ten major trading partners.
  • The end of the 90 day pause on reciprocal tariffs is approaching.  Adding to bullishness is an expectation in the stock market that it is a soft deadline and negotiations are underway in good faith.
• PCE is the Fed’s favorite inflation gauge.  Inflation came slightly hotter than expected.  Here are the details:
  • Headline PCE came at 0.1% vs. 0.1% consensus.
  • Core PCE came at 0.2% vs. 0.1% consensus.
• The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  Personal spending and personal income dropped.   Here are the details:
  • Personal spending came at -0.1% vs. 0.2% consensus.
  • Personal income came at -0.4% vs. 0.4% consensus.
• University of Michigan Consumer Sentiment was released at 10am ET.

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), and NVIDIA Corp (NVDA).

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

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

In the early trade, money flows are positive 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 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.