Jobs Data Is Strong
What is it?
Data came out last Thursday pointing towards a strong labor market.
“ADP private-sector payrolls came in well above estimates. Meanwhile, other reports found that layoffs slowed and jobless claims remained relatively low.”*
Why does it matter?
While the data may sound good it could have harsh implications. Investors took the strong labor market as a sign that the Fed is more likely to raise interest rates.
“Markets are now seeing a 95% chance of a hike at the Fed’s July meeting.”*
Fed officials seemed to be more hawkish than expected as most mentioned more rate cuts would be needed to lower inflation.*
Investors Find a new Favorite
What is it?
“Retail traders raised their exposure to U.S. stocks in June encouraged by healthy returns, with their focus shifting to electric-vehicle firms from artificial intelligence stocks earlier in the year. Record vehicle deliveries by Tesla, consistently a favorite among the retail crowd, have helped spark small-time investors’ interest in EV stocks, including Rivian.”**
Why does it matter?
“’While it may be difficult to see a further increase in the pace of cash equity purchases from these levels, there is still room for more speculative buying in the options space,’ said Marco Iachini, senior vice president at Vanda Research that tracks retail flows.”**
While stocks have been performing well that is not a good reason to go all in. Many investments are signaling overbought. So while some may be buying to capitalize on the recent up moves, others may be selling to take profits on their positions. If you’re the last to speculate on a recent up move you could get stuck holding the highest share price as values come back down to more rational levels.
We are not looking to be greedy as some of our positions are already up. When stocks are overbought like this we tend to reduce exposure while being selective on what we buy more of. While electric vehicles are performing well in the markets their move may be short lived. Even though we plan on investing in EVs for the long term, we may be patient for a more favorable opportunity to buy more as prices have already jumped up recently.
Other articles we found interesting this week:
Current 401(k) portfolio
Our last 401(k) portfolio reallocation: 5/19/2022.
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The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
*Karen Friar and Josh Schafer. “Stocks slide as fresh jobs strength adds to Fed hike consensus”. Yahoo Finance. 7/6/2023. https://finance.yahoo.com/news/stocks-slide-as-bets-build-for-fed-hike-in-july-stock-market-news-today-181309676.html
**Medha Singh. ”Retail traders pile into US stocks; focus shifts to EVs from AI”. Reuters. 7/6/2023. https://www.reuters.com/business/retail-consumer/retail-traders-pile-into-us-stocks-focus-shifts-evs-ai-2023-07-06/
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