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- Inflation stayed flat in July for the first time in 25 years.
- 12 month inflation is now at 8.5%, down from 9.1% last month.
- The U.S. stock market has begun to rebound, but so far there’s no certainty on how long it will last.
- Top weekly and monthly trades
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Major events that could affect your portfolio
One of the major events this week has been inflation. Wait, don’t go to sleep yet, we know this is hardly the first time you’re hearing about inflation lately, but this time it’s for a different reason.
The figures for July just came out, and prices stayed exactly flat for the month of July. That’s right, for the first time in a while, we’ve not seen a new inflation record with the release of new data. It’s not cause to break out the champagne just yet, with the 12 month figure still reaching 8.5%, but it’s a significant improvement from the previous month of 9.1%.
Not only did prices remain steady throughout the month, but in many cases prices actually fell. Airline tickets, clothing and (shockingly) gas prices all fell in the month of July.
In fact, much of the travel sector saw prices come off. Airfares dropped 8% over the month, the cost for a rental car dropped almost 10% and the average hotel price softened by 2.7%. After hitting a high of $5 a gallon on average, gas prices have fallen significantly and are down almost 20% to $4.01 as of Wednesday.
It wasn’t all good news, with grocery prices still rising 1.3% last month and restaurants and rent both up 0.7% for the month.
Right now we can’t draw too many conclusions from just a single month. It may just be a momentary respite from the relentless rising prices, or it may be a sign that the trend is starting to turn. For now, analysts will be watching upcoming economic data with interest to make a call on which of these scenarios is most likely.
The past few weeks have seen a turnaround in the fortunes of U.S. companies, with the S&P 500 up almost 15% since June 16th. The economic data that has been coming out has been better than expected in many cases, and earnings season has been a pleasant surprise for many analysts.
Overall this has created some positive movement in the U.S. stock market, but so far it’s not certain whether this is the beginning of a new trend or a ‘bear bounce’ that will reverse shortly.
The news on inflation will be having a positive impact on sentiment, as it has been one of the overarching factors in the pessimism of recent months. At a more specific level, we’re seeing prices come down in some of the most important areas of the economy, in particular the price of crude oil.
Given how widely used oil is, being used in everything from plastics to transportation, a softening in the price has the potential to provide knock-on benefits to the wider economy.
Job figures released last week were also very well-received, with 528,000 new jobs being added in July. This figure was a big surprise with many analysts expecting less than 400,000 new jobs for the month.
None of this means that it’s smooth sailing from here on, but it gives some hope that a market turnaround could be getting closer.
This week’s top theme from Q.ai
The U.S. market has been beat down pretty hard so far this year. Tech stocks in particular have taken a hammering, after two years of frankly phenomenal performance. The fall has been so dramatic, that we’re of the opinion that it’s gone too far.
The U.S. stock market makes up almost 60% of the total global market cap, and yet in 2022 the S&P 500 has performed worse than many other global markets. This doesn’t necessarily make sense, but that also means that it’s a situation that can potentially be used to your advantage.
Because of this potential mispricing, we’ve created the U.S. Outperformance Kit which uses a pair trade to go long on the U.S. stock market and short on the rest of the developed world. The short position includes countries like France and the UK, who’s stock markets have both performed better than the U.S. so far this year.
We use AI to rebalance these positions on a weekly basis to seek the optimal risk adjusted return potential. This is a Limited Edition Kit, and with the recent turnaround in the U.S. the opportunity might not last for too much longer.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
Valhi Inc (VHI) – The diversified holding company is our Top Buys for next week with an A rating in Quality Value and a B in Growth and Low Momentum Volatility. Revenue was up 25.7% year on year to the end of June.
Sidus Space Inc (SIDU) – Aerospace and defense company Sidus Space is a Top Short for next week with our AI rating them an F in our Low Momentum Volatility and Quality Value factors. The stock has fallen 72.81% over the last 12 months.
Tronox Holdings Plc (TROX) – Titanium products manufacturer Tronox Holdings is a Top Buy for next month with a B in our Quality Value, Technicals and Low Momentum Volatility factors. Earnings per share have grown 9.77% over the past 12 months.
Gamestop (GME) – Everyone’s favorite meme stock is our Top Short for next month and our AI rates it as an F in Quality Value and Growth and a C in Low Momentum Volatility. Earnings per share are down 11.01% over the past 12 months.
Our AI’s Top ETF trade for the next month is to invest in oil and gas and retail, while shorting the Asia Pacific region and floating rate bonds. Top Buys are the SPDR S&P Oil & Gas Equipment & Services ETF, SPDR S&P Retail ETF and the ProShares Ultra Bloomberg Crude Oil. Top Shorts are the Vanguard FTSE Pacific ETF and the iShares Floating Rate Bond ETF.
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