TL;DR
- The U.S. market performed well through the week, finishing up 1.76% on Thursday against five days earlier, and climbing over 1% higher in early trade on Friday
- Jerome Powell has made it clear the Fed plans to hike rates aggressively in their bid to bring record high inflation rates down
- Apple’s latest releases fail to create excitement for the stock price, closing down almost 1% the day after the event
- Top weekly and monthly trades
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Major events that could affect your portfolio
After a rough few weeks, the S&P 500 closed on Thursday up 1.76% over the previous five days and followed this up with a strong open on Friday morning. It’s one of the few positive periods that investors have experienced since stocks began a backwards slide in mid-August.
Wednesday in particular saw markets notch their best day since August 10, with the S&P 500 up 1.83%, the Dow up 0.83% and the Nasdaq Composite up 2.14%. With that said, it’s not been smooth sailing with various factors swinging markets both up and down throughout the week.
Thursday morning saw many of the week's earlier gains reversed, after Fed Chairman Jerome Powell re-iterated his heavy hitting remarks from their recent annual symposium. Speaking to the Cato Institute, Powell stated that the Fed was very wary of loosening monetary policy too quickly, and that a pause or even a reversal in the current policy was unlikely for some time.
Stocks then rebounded again in the afternoon, though it’s clear that investors are nervous and reacting strongly to minor updates and new information. Much of this nervousness is likely related to the anticipation of next week's CPI figures.
The U.S. Bureau of Labor Statistics released the figures for August on Tuesday, September 13th, and markets will be eager to find out whether the Fed's rate hikes have managed to have an impact on inflation.
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Apple’s annual presentation was the other major story this week, with the announcement of a range of updated products and software updates. While the event lacks the wow factor that it has provided in past years, the world's most valuable company continues to make incremental improvements to their tech and explore new ways to generate revenue.
The iPhone 14 was announced, though it remains broadly very similar to both the iPhone 12 and 13. There have been improvements made to the camera (as you’d expect), and they’ve introduced the ‘Dynamic Island’ feature that will allow for improved multi-tasking.
Apple also announced their update Watches, which included the Apple Watch Ultra, a more rugged version aimed at outdoor pursuits.
The updates failed to really move the needle on the Apple stock price. It finished up 0.42% on the day of the event, but then gave up this ground on Thursday, closing down 0.96%. It continues a slide which has seen the share price fall over 10% since August 17.
Apple isn’t alone in this regard.
It highlights the challenges facing tech companies right now, in a year that has been in stark contrast to the bumper performance from 2020 and 2021. Tech stocks have been hit particularly hard this year, and after gaining some of this lost ground between mid-June and mid-August, they’ve struggled to maintain that momentum over the past few weeks.
This week’s top theme from Q.ai
Fed Chairman Jerome Powell has not been mincing his words in recent weeks, he’s made it super clear that the Fed plans to hike rates multiple times, and they’ll be reluctant to wind back these hikes any time soon.
Interest rate hikes are implemented to slow down consumer spending. When spending reduces, it takes the heat of rising prices, and it is one of the main levers the Fed can pull in order to try to get inflation under control.
While this does usually work, it also means putting the brakes on economic growth. Higher rates means higher repayments for debt like mortgages and credit cards, which means less money to spend on other things. Lower spending means companies generate less revenue, and it’s why rate hikes usually aren’t good news for the stock market.
In an environment with low economic growth or even negative economic growth, large companies tend to perform better than small and mid-sized ones. Big companies generally have a more stable business model, more diversified revenue streams and less reliance on finding new customers.
It doesn’t mean they’re immune to market volatility, but they can hold up better in the face of choppy economic waters. To take advantage of this situation, we created the Large Cap Kit. Rather than taking an outright long-only position in large companies, it’s paired with another trade that shorts small and medium sized companies.
This means that investors can profit off the divergence of the two groups of companies. In short, investors can profit even if the overall market is sideways or even down, as long as large caps perform better than small and mid-caps.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
Nasdaq Inc (NDAQ) – The financial services household name our Top Buy for next week with an A rating in Quality Value and Quality Value. Gross Profit was up 59.4% in the year to June 30th.
TG Therapeutics Inc (TGTX) – The biopharmaceutical company is our Top Short for next week with our AI rating them an F in our Quality Value and a D in the Technicals and Low Momentum Volatility factors. Earnings per share has dropped 7.95% over the past 12 months.
Catalyst Pharmaceuticals (CPRX) – The pharmaceutical company remains a Top Buy for next month with an A in our Quality Value and a B Growth. Earnings per share have grown 11.68% over the past 12 months.
Applied DNA Sciences Inc (APDN) – The biotech company is our Top Short for next month with our AI rating them a D in our Low Momentum Volatility and Quality Value factors. Earnings per share is down 30.67% over the past 12 months.
Our AI’s Top ETF trade for the next month is to invest in natural gas, Chile and Biotech, while shorting China and short dated Treasuries. Top Buys are the United States Natural Gas Fund LP, the iShares MSCI Chile ETF and the SPDR S&P Biotech ETF. Top Shorts are the iShares China Large-Cap ETF and the SPDR Barclays 1-3 Month T-Bill ETF.
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