- Data shows the economy is doing better than many expected
- President Biden officially canceled some student debt
- Inflation remains elevated and expected to remain so for some time
- Top weekly and monthly trades
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Major events that may affect your portfolio
Much of the current sentiment and media coverage doing the rounds highlights the risk of a coming recession. The published economic data refuses for the moment to give in to this pressure.
While we have experienced two consecutive quarters of negative economic GDP growth, the National Bureau of Economic Research (NBER) has refrained from calling the current climate a recession. This is likely because there are many other data points that don’t look so negative. This week, that trend continues with the Durable Goods report and the Pending Home Sales report posting better than expected numbers.
The durable goods report is closely watched as a barometer of overall business spending, and the figure excluding defense spending and aircraft rose 0.4% in July. It was less than last month, but consecutive months of increased business investment contrasted with talk of recession and tightening.
That was more than the 0.3% economists had expected, and the report also contained an amended figure for June, raising the final figure from 0.7% to 0.9%.
The pending home sales report was not in positive territory, but it was also ahead of economists’ expectations. Contracts signed for new homes were down 1% for the month of July, but that was well above the 4% that had been projected.
While house prices have remained high over the past year, the level of activity has fallen for eight of the past nine months. The National Realtors Association noted that this latest report may show that the downturn in activity may have bottomed out.
By far the biggest story of the week was President Biden’s student loan cancellation. This is not a blanket cancellation of all student debt, but anyone earning less than $125,000 will have their debt reduced by $10,000.
Those who benefit from Pell grants, which are offered to the most needy students, will see their debt reduced by $20,000.
The total package is expected to cost the government around $300 billion. Opponents of the plan have questioned its economic cost, but even so it falls short of the $50,000 figure that other Democrats like Elizabeth Warren were calling for.
For investors, the financial outcome of the plan is unclear. On the one hand, the rebate will reduce the reimbursements the government receives each year, which, according to estimates, could represent up to 0.4% of GDP.
Conversely, lower debt will free up cash for consumers. This will improve the financial position of household budgets and allow for increased consumer spending on other goods and services. It also has the potential to spill over into other areas such as the housing market.
Lower loan repayments can increase households’ borrowing potential, which could get them onto the property ladder faster and could see movers increase their budget for their next home.
It remains to be seen what impact this plan will have on the economy, the stock market and, by extension, investors’ bottom line. Whatever the outcome, at Q.ai we have investment kits that can leverage the situation to your advantage.
This week’s flagship theme from Q.ai
Despite an economic context that seems to be holding up reasonably well, it is clear that inflation remains stubbornly high. Most analysts expect the numbers to come down to earth at some point, but it’s likely to be a gradual mean reversion rather than a drastic change in the rate of price increases.
Along the same lines, markets have been performing relatively well since mid-June, but this may not yet be a clear green light to return to a bull market.
Suffice to say that there are still a lot of risks around. Our Inflation Kit is designed to invest in assets that are likely to keep pace with inflation based on historical data. These include Treasury inflation-protected securities, gold, other precious metals and other commodities. To gain exposure to these assets, we use a combination of ETFs such as iShares 0-5 Year TIPS Bond ETF (STIP), Invesco DB Commodity Index Fund (DBC) and SPDR Gold Trust (GLD) . Depending on the underlying conditions, we may also add an allocation to agriculture and oil.
The allocation to these assets is rebalanced by our AI on a weekly basis, to take into account the most recent information.
This is a low risk kit that will not only provide a potential hedge against inflation. It can also serve as a middle ground for investors who still want to see a return on their investments and want a higher return than cash, but don’t want to take too much risk.
Best Business Ideas
Here are some of the best ideas our AI systems recommend for the week and month ahead.
Super Microcomputer (SMCI) – The server and data center company is our Best Buys for the next week with an A rating in Growth and a B rating in Low Momentum Volatility. Revenues increased 46.1% in the year to June 30.
Turning Point Therapeutics Inc (TPTX) – Oncology Pharmaceutical Company is our crop top for the next week with our AI assigning them an F in quality value and a D in our growth and low volatility factors. Turnover is down more than 98% compared to last year.
Photronics Inc (PLAB) – Semiconductor photomask manufacturer Photronics is a best buy next month with an A in our Quality, Value and Growth factors. Earnings per share have increased by 10.78% over the past 12 months.
Sidus Space Inc (SIDU) – Aerospace and defense company Sidus Space is our crop top for the next month with our AI giving them an F in our low volatility and quality value factors. Earnings per share are down 21.15% over the last 12 months.
Our AIs Next month’s top ETF trades is to invest in oil and gas and Chilean equities, while shorting the US market and Chinese large caps. Best Buys are iShares MSCI Chile ETF, SPDR S&P Oil & Gas Exploration & Production ETF and ProShares Ultra Bloomberg Crude Oil. Top Shorts are the Vanguard Total Stock Market ETF and the iShares China Large-Cap ETF.
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