🗞 You Wanted It, It's Here

WHILE YOU POUR THE JOE… ☕️
Talk to The Hand

I noticed something is happening this week, and it’s one of those contrarian signals that always end up paying big dividends.

Value stocks have outperformed growth stocks this whole week, and that's not a good sign. 📉 

In fact, all other risk-off assets have been on a similar path so far:

• Gold & Oil

• EURUSD

• Bonds

Even Bitcoin has given up some gains this week.

Now I know there is the whole patriotic rally happening because of July 4th, and the excitement of all-time highs on stocks, which is why I’ve been laying off the markets recently.

However, I think next week we start to see some fireworks, take this as a warning around the $6,300 level on /ES.

Speaking of fireworks, let’s get on with today’s email 📧…

HOUSTON WE HAVE A PROBLEM
Knocking on Rate Cuts’ Door

Riddle me this: if rate cuts are only needed when the economy is doing pretty bad, then why is everyone still getting so excited about them? "

More than that, why are Trump and Bessent pushing so much for rates to be lowered right now? 👀 

In our last newsletter, we covered some of the present tail risks standing above the S&P 500’s head right now, so that should give you a bit of insight.

Today though, we get a bit deeper, especially on new economic data that came out yesterday.

ISM Manufacturing PMI

Have you ever wondered how Goldman Sachs comes up with this bullish/bearish indicator? 🤷‍♂️ 

I’m not saying I know how the secret sauce is made, but I know that they combine a few leading and current economic indicators that have a high % chance of predicting the next 6-9 months of stock market performance (S&P 500 specifically).

Which is why up to 33% of The Sovereign Trader Program is focused on curating these indicators for you to track your own biases, along with our proprietary Excel models that help us do just that.

One of them is the ISM Manufacturing PMI, and this is what stood out for us this month:

Production measures jumped out in this recent issue, with a 4.9 point increase MoM, that’s not a normal swing especially for manufacturing.

However, new orders were well below this sort of momentum, which must mean most of the new production is coming to satisfy foreign purchasers… Interesting.

But then you connect the dots to the recent durable goods orders metric and realize, oh, there is actually a lot of recent demand for US goods right now.

Not all type of goods though. ❌ 

These jumps in production and durable orders are likely tied to the front-running ahead of tariffs which could increase future prices for these businesses to satisfy the amount of customer orders they now need to fill.

That’s an important piece of information to keep in mind as we work our way down to what will become the idea generation process.

Exports rose by 6.2 over the month, but imports unexpectedly jumped from their previous drop to levels not seen since 2009 by a factor of 7.5.

In case you’re not thinking it already, yes, these imports are likely the raw materials we source from Asia and other countries in order to get the production going onshore.

Bingo.

Now before we move onto selecting some industries for our purposes, I want to give you an honorable mention:

New orders and employment were both lower on the month, meaning that outside of these couple of industries seeing high production and export orders, nothing much is happening for the economy. 📉 

Of course manufacturing is still only ~20% of US GDP, but we will soon find out whether this trend is also spilling over onto services (~80% of GDP).

Industry Selection

Let’s stay on theme here okay?

We’re looking for the outliers in terms of production, and then try to match the story with import / export dynamics.

I feel comfortable highlighting the following for you:

• Apparel

• Petroleum & Coal

• Miscellaneous Manufacturing

• Furniture

Two of these we have already covered.

For furniture, we gave you our long $FND / short $LOW trade, which is already up 22% 🔥 in less than a month, and this expansion in production only tells us we should add more to that trade.

In petroleum, we did give you $RIG a while back and reiterated our buy rating on it, so not much to do there other than look for a potential hedge, which those inside the program know about.

That leaves us with apparel. 👕 

So stay tuned for the next newsletter, we will go over the second half of the process (although simplified) of picking the stocks we want to go long and short on within apparel.

P.S.

If you find this process to be superior to most of the garbage you’ve encountered over your trading career, you’re not alone.

Breaking your current ceiling and improving your odds is about finding the problems that hold you back, and fixing them moving forward.

Which is why I created this free 5-day email experience for you to do just that.
(By the way, you will get our PMI Excel model inside it) 👀 

Sign up here.

To your success,

G. 🫰 

GO AND MAKE IT HAPPEN
The Wave of Future You

AI is not the thing, it is the thing that will lead you to the thing.

And most people (including me) still don’t understand AI, especially the fact that it is only good at explaining the world you give it, not understanding the world outside it.

Today’s book recommendation 📖 will likely point you in the right direction during this race.

To your success,

G. 🥃