What was supposed to be a sleepy summer has been anything but in 2022, with the S&P 500 rocketing up 8% in July. The market overcame inflation, a 75-basis-point rate hike and a host of geopolitical issues like the Russia-Ukraine war and monkeypox.
But it’s now August, and I expect the market to be much more subdued… even bearish.
August starts a historically turbulent and bad stretch for the markets, according to the Stock Trader's Almanac.
“The research outfit said that from 1988 to 2020 average declines for the benchmarks ranged from 0.4% for the Russell 2000 to 0.8% by Dow. For the Nasdaq Composite, meanwhile, August ranks as second-worst, with an average gain of 0.2% over the same period, with September being the worst month for the technology-heavy index.” — Market Watch
This Week’s Economic Numbers That Matter
One of the big data points the Federal Reserve is relying on to keep the pedal to the metal in terms of raising rates to battle inflation is the jobs data.
Nonfarm payrolls show how many jobs the U.S economy added last month. We’re in a unique situation where a strong number could be read as bearish for stocks because the Fed could then have more runway to tighten.
And if the jobs number comes in weaker than expected, you might also see bearishness in other pockets of the market like commodities and retail — anytime the case can be made to sell, regardless of the outcome, take heed.
Change in Nonfarm Payrolls: 8:30 a.m. EDT, Aug. 5, 2022.
Some Earnings we need to pay attention to
Advanced Micro Devices Inc. (Nasdaq: AMD) earnings are due Tuesday, Aug. 2, after the close. AMD’s rival Intel reported terrible numbers that smashed INTC on Friday. Typically, you’d expect AMD to sell off in sympathy since they are both semiconductor companies, but AMD traded 3% higher on the news!
What gives? Those of you who subscribe to my Link Trades strategy would know that Intel’s pain is AMD’s gain. That trend has created one of the best long/short pairs trades of the past five years — a trend I’ve played in the strategy successfully numerous times.
As for AMD’s earnings, the market is pricing in a 6.4% move the day after earnings. The stock has beaten by double digits at nearly 100% clips going back to 2020. And last quarter, AMD rallied over 9% on the day. I like this trend to continue with AMD trading higher… If you want to hedge, buy some INTC puts!*
Remember to check your inbox on Friday for a recap of the week to see how it all played out!
Joy of the Trade
P.S. We haven’t seen investors pull their money out of the market at a rate like this in years…
Meanwhile, the Federal Reserve is about to meet and let us know how much it plans to raise interest rates this week.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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