June's fear is July's rally

📊  Today’s Big Picture

Two weeks ago, the market was bracing for higher rates. This morning it is betting on cuts.

One report did that.

Friday's jobs number came in soft. The economy added just 57,000 jobs in June, about half the 115,000 expected, and the prior two months were revised down by 74,000.

Unemployment slipped to 4.2%. But that’s mostly because people stopped looking for work.

Markets read it as a green light for the Fed to ease. The 10-year Treasury yield fell, the dollar slipped, and the odds of a rate hike by September dropped to about 51% from 63% a week earlier.

Almost everything caught a bid.

• The S&P 500 (INDEX: SP500) sits near record highs after its best quarter since 2020.
• Gold held near $4,180.
• Even Bitcoin (BTC) jumped to a two-week high above $62,000.

Here’s what is worth slowing down for.

The same force that crushed markets in June is the one lifting them in July, and it has not resolved anything yet.

The number that settles it lands next week.

Today, i’m going to show you want really flipped the mood, why one soft report is not the all-clear, and how to stay steady when everything turns on a single data point.

🔍  Signal vs. Noise

Three Headlines, Three Realities

• The first headline is that the Fed's toughest hawk went soft, so rate cuts are coming.
• What the math says: one gentler comment is not a rate cut.

Fed Chair Kevin Warsh spent June warning about inflation. This week he said those risks had eased, his first softer note since taking the job.

Markets heard relief and ran with it.

But nothing has changed on paper. Rates still sit at 3.50% to 3.75%, and the Fed has not cut.

A change in tone is a hint, not a decision.

And the report that decides it, next week's inflation data, has not landed.

Words move markets for a day. Data moves them for a month.

• The second headline is that a weak jobs report is bad news.
• What reality says: in this market, soft data is exactly what investors were cheering.

This is the strangest rule in the market right now, and it is worth understanding.

A cooling economy makes the Fed less likely to keep rates high. So bad news for workers can land as good news for markets.

That is why stocks, gold, and bonds all rose on a report that showed hiring stalling.

But do not lose the thread underneath the celebration. Hiring of 57,000 a month is weak, the prior months were revised 74,000 lower, and people are leaving the workforce.

A slowing economy is a reason to ease. It is also a slowing economy.

• The third headline is that digital assets are back and the bottom is in.
• What reality says: most of the bounce was forced, and the big money is barely back.

After a brutal June, Bitcoin ripped to a two-week high and Ethereum (ETH) cleared $1,800.

But a lot of that jump was a short squeeze. When too many traders bet against a rising price, they are forced to buy it back, which shoves the price up even faster.

About $450 million of those bearish bets got wiped out in a day.

And the larger money is barely back. Bitcoin funds bled cash for eight straight weeks, more than $8 billion, before a single strong day on Thursday.

A squeeze can light the fire. It takes real money to keep it burning.

The noise says the Fed has pivoted, weak data is bad, and digital assets have bottomed.

The signal says the Fed only changed its tone, soft data is exactly what this market wanted, and the bounce was mostly a squeeze. I know which side I'm paying attention to.

Behind the Headlines

This week, Decentralized Masters CEO Tan Gera on navigating the market when they Fed is highly unpredictable.

Let me tell you about the last time a Fed chair changed his mind, and what it cost the people who tried to trade around him.

December 2018: The Whipsaw

In late 2018, the Federal Reserve was raising interest rates and promising more.

Its chair, Jerome Powell, sounded firm. He called the shrinking of the Fed's balance sheet "automatic," and markets took him at his word.

They sold off hard. US stocks fell almost 20% into Christmas, one of the worst Decembers since the Great Depression.

Investors who panicked and sold near the bottom locked in the loss.

Then, a few weeks later, Powell reversed. He signaled patience instead of more hikes.

Markets ripped straight back, and 2019 became one of the best years for stocks in a decade.

The people who sold the hawk and missed the pivot got hit twice. Once on the way down, and again by missing the recovery.

Why This Is So Critical Today

This week, a different Fed chair softened his tone, and the market lurched the other way.

Same machine. A central banker shifts his language, and every asset you own reprices in a day.

Here’s the trap.

If you try to guess the Fed's next mood, you get whipsawed the same way investors were in 2018.

No one can reliably predict which way a central banker leans next month. The professionals paid to do it spent all of June bracing for hikes, and spent Friday tearing up the forecast.

What All-Weather Actually Holds

There is a different way to carry your money through this. We call it All-Weather.

Instead of betting on one outcome, you hold a mix built for every environment at once:

• Assets that rise when rates fall.
• Assets that hold firm when rates climb.
• Assets that protect you when inflation bites.
• Assets that carry you when growth slows.

You stop needing to be right about the Fed, because you are covered whichever way it moves.

The Payoff In A Week Like This

Look at the last two weeks through that lens.

The investor who tried to time the mood was terrified in June and chasing in July. Two chances to be wrong.

The all-weather investor barely flinched, because June's fear and July's relief were both already accounted for in the portfolio.

That is the quiet advantage. You are not calmer because you are braver. You are calmer because you are covered.

The lesson from 2018 has not aged a day. The market will always swing on the next headline.

Build a portfolio that does not need you to predict it.

💭  What To Watch For

Next week's inflation report (July 14).

The jobs report set the mood. The Consumer Price Index, a measure of how fast prices are rising, is the number that confirms or kills it. If inflation runs hot, this week's rate-cut hope could vanish fast.

The Fed on July 29.

Rates sit at 3.50% to 3.75%. After this week's softer tone, watch whether the Fed backs it up or walks it back at its next meeting.

The digital asset rulebook after the recess.

The CLARITY Act, the bill meant to give digital assets clear US rules, stalled in the Senate before the July 4 break. One major bank, Citigroup, cut its 12-month Bitcoin target to $82,000 from $112,000, blaming the delay in part. Watch whether lawmakers pick it back up.

Whether the money keeps coming back.

Bitcoin funds just snapped an eight-week losing streak with their best day in two months. Watch whether that becomes a real trend or fades.

💭  Today’s Final Thought

Two weeks ago, the mood was fear.

This week, it is relief.

Nothing about the economy changed that fast. One jobs report did.

The same force ran both moods. Interest rates, and the Fed that sets them.

That is the truth under all the noise. June's panic and July's bounce were the same story told two ways, and both came down to what the Fed does next.

You will never call those swings perfectly. Nobody does.

What you can control is whether the next headline runs your portfolio, or whether your portfolio was built to handle it.

The mood will flip again. It always does.

Build for every season, and stop living at the mercy of one number.

- Rami Al-Sabeq (Editor in Chief | Future Finance)