The ETF Research Week 29 strategies, published on Saturday, July 12, focused on technology stocks and UUP holdings:
U.S. Strategy ===> XLK/UUP = 1.35% (From market close on Friday, July 11, to market close on Friday, July 18)
E.U. Strategy ===> ZPDT/USD = 1.42% (From market close on Friday, July 11, to market close on Friday, July 18)
Benchmark ===> S&P 500 = 0.59% (From market close on Friday, July 11, to market close on Friday, July 18)
The following are the ETF Research returns as of Friday, September 27, 2024:
U.S. Strategy = 5.96%
E.U. Strategy = 14.40%
Benchmark (S&P 500) = 9.74%
The following graph shows the growth of a hypothetical $10,000 invested in each of the two strategies starting from Friday, September 27:
Week 30 Outlook
Last week’s core CPI beat expectations, while showing that inflation is still present and will probably be here for a long time. Markets expect tariffs to add to the inflationary scenario. However, while this is a certainty, it will happen gradually. Firms were expecting the US presidency's move (tariffs) in Q1 2025 and had filled their inventories. Therefore, inflation is stable (around 3% core CPI YoY) not because firms are taking losses on their balance sheets (they are not absorbing inflation), but simply because they are emptying their inventories, which were filled in the pre-tariff era. The same reasoning applies to the Producer Price Index, which is a measure of inflation from the perspective of the producer or seller. Retail sales for June (+0.6% MoM) are consistent with this hypothesis. The change in inventories seen in Q1 2025 was in line with what we have seen in the post-COVID period.
Unemployment is rising slowly, very slowly. It will rise faster when inventories get depleted. In a nutshell, the stock market still needs to factor in the real effect of tariffs. However, it is still not time for an equity drawdown. Current negotiations with Europe on tariffs (30% threatened by the US presidency) will determine the timing and intensity of the drawdown. Based on current market conditions and our model's outlook, here is our strategy for Week 30:
U.S. Strategy:
We are holding our XLK and UUP positions. The portfolio is composed of XLK (50%) and UUP (50%)
E.U. Strategy:
We are holding our ZPDT and USD positions. The portfolio is composed of ZPDT (50%) and the US Dollar (50%)
(NEW) OPTIONS CORNER:
We have decided to launch an options corner. The analysis will always be based on the ETF Research model, and the underlying assets will always be ETFs.
The UUP call option (December 19, 2025 expiration, $26 strike price) has returned 9.1% over Week 29 since its purchase on Tuesday, July 8th.
Week 30 ==> We will hold the long position in UUP call options (December 19, 2025 expiration, $26 strike price)
The performance review for Week 30 and the outlook for Week 31 will be released on Saturday, July 26.
Disclaimer
The information provided in this newsletter is for informational purposes only and should not be considered financial advice. The author is not a licensed financial advisor, consultant, or professional, and any investment strategies, suggestions, or opinions shared are based on personal research and experience. All investments carry risk, and past performance is not indicative of future results. It is recommended that you consult with a qualified financial advisor or professional before making any financial decisions.