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"The Economy is OK-ish!"
Issue #85
Hi There! This past Sunday, many of us took the time to honour the sacrifices and contributions of the fathers and father figures in our lives. For others, like myself, it was a moment to cherish the memories of our fathers who have passed on. Every year, as I reflect on Father’s Day, a thought lingers in my mind: how often do we, as children, tell our fathers how proud we are of them, just as much as we yearn to hear our dads say they are proud of us?
Saying "I love you" or "Thank you" is wonderful, but it isn’t always enough. Fathers and father figures, regardless of age, need to be blessed verbally by their children with more than just expressions of love. It’s invaluable to express your respect, admiration, and appreciation in different, profound ways.
Our fathers need to hear "I’m proud of you" or "I am proud to be your child." These words carry a deep sense of validation and recognition that goes beyond the ordinary. And if your father is no longer with you, say it the next time you are bonding with his memory. These sentiments are not only powerful but transformative, affirming the important roles our fathers have played in shaping who we are.
Alright, let’s dig in!
Despite a slight dip last Friday, major indexes logged wins last week. The Nasdaq achieved its fifth consecutive record close, up over 3%, while the S&P 500 gained over 1.5%. The Dow, however, fell by over 0.5%. U.S. stocks rose for the sixth time in seven weeks as investors digested cooling inflation data.
Sector Performance:
Technology: Led the gains with strong performance from AI and semiconductor stocks. Adobe (ADBE) spiked on better-than-expected earnings. Apple (AAPL) rallied on news of a new AI offering, and chipmakers Broadcom and NVIDIA (NVDA) posted significant gains.
Real Estate and Communication Services: Benefited from tech tailwinds, outperforming the broader market.
Energy and Financials: Lagged behind due to weaker performance.
Fixed Income:
U.S. Treasuries: Experienced elevated volatility but ended higher for the week. Softer CPI data led to a decline in yields, offsetting gains from a robust jobs report. Strong demand for 10-year and 30-year bond auctions indicated investor confidence in longer-term yields.
Commodities:
Bloomberg Commodity Index: Increased by around 0.70%. WTI crude oil rebounded by 4%, while gold futures gained 1%. Copper prices remained stable.
U.S. Economic Recap
Inflation:
Consumer Price Index (CPI): Flat in May, with the annual rate down to 3.3%. Core CPI rose by 0.2% month-over-month.
Producer Price Index (PPI): Fell significantly in May, driven by lower energy and food prices, pulling the annual rate down to 2.2%.
Federal Reserve:
Interest Rate Decision: The Fed maintained the benchmark rate at 5.25%-5.5%, projecting one rate cut in 2024. Core PCE inflation is expected to remain above target at 2.8%.
Fed Chair Jerome Powell:
Emphasized substantial progress in reducing inflation but noted it remains too high. Consumer spending remains solid, and the labour market is balancing out. Policy tightening will continue until inflation approaches the 2% target.
Global Market Recap
Europe:
European equities faced a rocky week, broadly ending in the red due to political unrest in France. The STOXX 600 was affected, with utilities, energy, and banking sectors down, while drug, grocery stores, and healthcare sectors outperformed.
Asia:
Asian markets were mixed, with Chinese automakers weathering EU EV tariffs. Japan's stock markets had mixed returns, and China's stocks retreated despite positive economic data.
Cryptocurrency Highlights
Bitcoin (BTC):
Briefly surged to near $70,000 following the CPI release but dropped by 4.5% after Fed Chair Powell's comments on rate cuts. U.S. spot Bitcoin ETFs saw significant outflows near $600M, breaking a 19-day inflow streak.
Here are other key highlights from last week:
BNB Chain to support early projects with new incubation alliance.
Solana Labs launches customer loyalty platform.
Biconomy onboards AI agents for on-chain transactions.
Atari launched a virtual crypto project in Decentraland.
Polygon hit a major milestone on path to community ownership.
This is another short week!
Key U.S. Economic Events:
Monday, June 17: NY Fed Manufacturing Survey showed improvement but remains negative.
Tuesday, June 18: U.S. retail sales data was softer than expected.
Wednesday, June 19: Juneteenth Day (Stock Market Closed).
Thursday, June 20: Initial Jobless Claims, Philly Fed Manufacturing Survey.
Friday, June 21: Services/Manufacturing PMI, Existing Home Sales.
Fed Speakers and Statements
FOMC Member Harker: Views one rate cut as appropriate for this year, highlighting a "tale of two economies" with significant struggles for some.
FOMC Member Cook: Spoke at an awards presentation without commenting on the economy or policy.
FOMC Member Barkin: Acknowledged being on the backside of inflation but uncertain about recent signals.
FOMC Member Collins: Emphasized patience, noting recent inflation data is encouraging but too early for conclusions.
FOMC Member Kugler: Provided four reasons for optimism on inflation, including consumer behavior and productivity growth.
FOMC Member Logan: Discussed rate cuts contingent on sustained better inflation data, expressing caution about inflation reemerging.
FOMC Member Musalem: Signaled a cautious approach to rate cuts, expecting conditions to take months or quarters to play out.
FOMC Member Goolsbee: Wants to see more consistent inflation data before feeling confident about reaching the Fed's goal.
FOMC Member Barkin: Scheduled to deliver a speech on Thursday entitled, “The Recession Question”, at Risk Management Association, in Richmond.
Earnings Releases:
Notable earnings releases this week are outlined in the chart below.
Key Global Economic Events this week:
Monday: China Industrial Production, China Retail Sales, RBA Interest Rate Decision.
Wednesday: UK CPI, New Zealand GDP, China Loan Prime Rate.
Thursday: SNB and BoE Interest Rate Decisions.
Friday: UK Retail Sales, Germany Flash Manufacturing and Services PMI, Canada Retail Sales.
Trading Tip:
The S&P 500 Index typically rallies ahead of triple witching expiration days!
Week 6/09/24 - 6/15/24 Recap
Special Tools and Strategies
Triple Witching is this Friday, June 21st. Here is all you need to know about Triple Witching and its impact on the market and your trading.
What is Triple Witching?
Triple Witching refers to the simultaneous expiration of three types of derivatives contracts: stock options, stock index futures, and stock index options. This event occurs on the third Friday of the last month in a quarter, namely March, June, September, and December.
How Does Triple Witching Work?
Stock Options: Contracts that give investors the right to buy or sell individual stocks or ETFs expire. Investors must decide whether to exercise, roll over, or let these options expire.
Stock Index Options: Options based on broader market indices, such as the S&P 500, also expire. Investors need to decide on closing or rolling over their positions.
Stock Index Futures: Futures contracts based on indices like the S&P 500 or Nasdaq expire. These are often used for hedging and speculative purposes, and positions are typically closed or rolled over.
Triple Witching Days in 2024 -Save the Dates!
March 15, 2024
June 21, 2024
September 20, 2024
December 20, 2024
How to Trade Triple Witching
Stay Informed: Be aware of the specific triple witching date and which contracts are expiring.
Implement Risk Management: Use strict risk management practices, such as stop-loss orders and smaller trade sizes, to account for increased volatility.
Manage Options Positions: Consider closing out or rolling over options positions to avoid unwanted assignments.
Prepare for Futures and Index Trading: Be ready to close out or roll over positions before triple witching.
Observe Market Behavior: Monitor trends and price patterns leading up to and on the day of triple witching.
Ensure Market Liquidity: Make sure you can execute orders effectively, as liquidity can change rapidly.
Practice with Paper Trading: Use a simulated environment to practice strategies without risking capital.
Develop a Trading Plan: Create a plan with clear entry and exit points and a stop loss for adverse market moves.
Avoid Emotional Trading: Stick to your plan and avoid impulsive decisions.
Monitor Financial News: Keep an eye on news that may impact markets on triple witching days.
Some Triple Witching Day Strategies
Momentum Trades: Look for stocks or indices with strong momentum to capture short-term gains.
Scalping: Profit from small price movements by executing multiple trades throughout the day.
Gap Trades: Focus on price gaps between the previous day's close and the opening price.
Reversal Trades: Identify overbought or oversold securities that may reverse direction.
Trade the News: Follow news closely for opportunities arising from market reactions.
Impact on the Markets
June 21, 2024: The Next Big Expiration Date is Coming!
Historically, Triple Witching doesn't just affect the market on the expiration day itself but also in the days before and after.
Here's what I've learned from looking at historic S&P 500 Index over a fifteen-year period, covering 59 Triple Witching events:
The chart below shows the average change in the S&P 500 Index for 15 trading days before and after Triple Witching.
On the horizontal axis - the number of days before and after Triple Witching.
On the vertical axis - the average price change in percentage points.
This data indicates that the market tends to be more volatile during this period, meaning prices can move up or down more sharply than usual.
Summary
Triple Witching can offer lucrative trading opportunities, but it is important to approach it with caution, especially for those who are new to the financial markets. It may not be a bad idea to stay on the sidelines, particularly if you are new to trading, to avoid the heightened risks associated with this event.
Disclaimer: This newsletter is strictly educational. The information this report provides does not constitute investment, financial, trading, or any other advice. You should not treat any of the report’s content as such. Please be careful and do your research.