Rate Cut Odds At 99%; OpenAI-Broadcom To Challenge Nvidia, Musk's $1T Pay

To gain an edge, this is what you need to know today.

99% Rate Cut Probability

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows the stock market has been levitating above zone 1 (support).
• The chart shows a spike up after the jobs report.
• RSI on the chart shows the stock market is neither
• overbought nor oversold.
• Broadcom Inc (AVGO) earnings were mostly inline with whisper numbers, but the stock is moving on the deal with OpenAI to take on NVIDIA Corp (NVDA). Broadcom and OpenAI are partnering to form an artificial intelligence accelerator. The first chips will ship in 2026. OpenAI has placed more than $10B in orders from Broadcom.
• In our analysis, the Broadcom deal with OpenAI is negative for Nvidia and Advanced Micro Devices Inc (AMD).
• Tesla Inc (TSLA) board is focused on "retaining and incentivizing" CEO Elon Musk. Tesla's board approved a $1T CEO Performance Award. To receive the full award, Musk must create $7.5T in value for shareholders, reach adjusted EBITDA targets, deliver 1M AI bots, and have 1M robotaxis in operation. The award is to be paid in shares of TSLA stock. Musk will not receive a salary or bonus. Investors should note Musk's performance goals are related to humanoid robots and robotaxis and not EVs. As we have been sharing with you, a battle has been waging at Tesla – robots vs. EVs. Robots appear to be winning.
• The jobs report is weaker than expected Here are the details of the jobs report:
  • Nonfarm payrolls came at 22K vs. 78K consensus.
  • Nonfarm private payrolls came at 38K vs. 90K consensus.
  • Average hourly earnings came at 0.3% vs. 0.3% consensus.
  • Average work week came at 34.2 hours vs. 34.3 hours consensus.
  • Unemployment rate came at 4.3% vs. 4.3% consensus.
• In our analysis, new hiring has significantly slowed.
• In our analysis, after this jobs report, the probability of a rate cut in September is now 99%. Here is the key question: Will the Fed cut rates by 25 bps or 50 bps?
• The momo crowd is exuberant this morning on the prospect of more people losing their jobs. Here is momo gurus' argument:
  • More job losses mean bigger rate cuts.
  • More job losses mean more deficit spending and more borrowing.
  • Lower interest rates, more deficit spending, and more borrowing will drive stocks to the moon.
• In our analysis, prudent investors should not buy into momo gurus' argument. A weaker economy also means lower earnings. When interest rates are cut because the economy is strong but inflation is low, it is good for the stock market in the long run. However, when interest rates are cut because the economy is weak and inflation is higher, it can spike the punch in the short term, but it is negative for the stock market in the long term. In the long run, more deficit spending and more borrowing is also negative for the stock market even though in the short term it boosts the stock market.
• After gaining advantage over the U.S. in trade talks and displaying the new world order it is trying to establish with Russia and India, China is getting bolder. China will impose a 78% tariff on U.S. fiber optic products.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta Platforms Inc (META), Microsoft Corp (MSFT), and Tesla (TSLA).

In the early trade, money flows are neutral in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), and Alphabet Inc Class C (GOOG).

In the early trade, money flows are negative in Nvidia (NVDA).

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ. Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil. The most popular ETF for gold is SPDR Gold Trust (GLD). The most popular ETF for silver is iShares Silver Trust (SLV). The most popular ETF for oil is United States Oil ETF (USO).

Gold

Money is flowing into gold on the weak jobs report. Money flows are extremely positive in silver.

Bitcoin

Bitcoin is seeing buying.

What To Do Now

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.