Tell me if this has ever happened to you…
… you plan a trade, execute the trade — then moments later some wacky headline hits the wires and completely ruins the trade.
If your answer’s yes, don’t beat yourself up.
We’ve all been there. It’s something I’ve been experiencing more recently.
CAUTION: If there’s one thing traders should be paying attention to right now … it’s the news.
And speaking of news, my mentor Tim Sykes has been working on a secret project for almost a decade that he’s finally ready to reveal — Operation Overseer. It aims to help traders find under-the-radar plays in this brutal bear market. Click here to find out more!
Major global news stories have rocked the U.S. stock market more than any other factor over the past few weeks.
If you aren’t closely watching the news cycle right now, you’re trading with blinders on.
But for now, I’ll do some of the research for you. Let’s break down the three stories driving this news-driven market…
The 3 Problems That Must Be Solved
So much is happening in the world right now that it’s hard to make a laundry list of potentially actionable headlines for trading.
However, that’s our job as traders in a news-driven market.
In my opinion, the market desperately needs some kind of resolution to these three concerns (or a major shift in sentiment) before it can bottom.
1. U.S. Inflation at a 40-Year High
Unless you’ve been living under a rock, you’ve probably heard that the U.S. dollar is experiencing rampant inflation — the worst in four decades.
Last Friday, the consumer price index (CPI) — a key inflation metric — came in showing an 8.6% rise in May (its highest level since 1986).
Bottom line: Inflation seems to be getting worse, not better.
This puts an enormous strain on consumer purchasing power, which causes ripple effects throughout the entire U.S. economy.
The same goes for the decreased purchasing power of businesses and corporations. (The expectation of this has already depressed stock and crypto prices.)
2. Federal Reserve Interest Rate Hikes
The U.S. Federal Reserve has two jobs — to control inflation and keep unemployment low.
When inflation is completely out of control, the Fed’s standard move is to hike interest rates.
REMEMBER: This is all part of the macroeconomic pendulum shifting. The Fed had rates near zero for more than two years, which created the inflationary environment we’re currently living in. Now, the pendulum needs to swing back to tamper inflation concerns.
But the interest rate narrative has been a roller coaster recently. The Fed seems stuck and unsure how to handle the inflation and possible looming recession.
Now, the market is debating whether the Fed’s next hike will be 50 basis points or 75. Thinking further down the road, I think the Fed will need to hike more and more to get anywhere near catching up to this unprecedented level of inflation.
This whole situation puts major headwinds on stocks for the next 6-12 months. Be cautious as you trade this hawkish monetary policy.
3. The Russia-Ukraine Conflict
Let’s be honest … one story dominated the first half of this year.
Inflation and rate hikes have been minor, newsflow-wise, compared to the ongoing military conflict in Eastern Europe.
NOTE: War is always unfortunate and tragic. From a human perspective, we should all hope for this conflict to come to a peaceful and rapid resolution.
From a trader’s perspective, the Russia-Ukraine situation has materially changed the markets. In short, the energy sector’s been on fire while everything else has been decimated.
The situation in Eastern Europe has probably slowed the Fed down on hiking rates, potentially putting them behind the curve on inflation. A perfect storm, if you will.
Now, the narrative seems to be that a resolution to the war could give the Fed more leeway to hike rates.
Regardless, you’ve gotta be paying attention to this ongoing conflict if you’re gonna trade this market with competence.
I notice a lot of retail traders are scrambling to position themselves correctly amid the constantly-shifting market backdrop.
That’s understandable. But remember, there’s always a corner of the market that’s rallying — even when conditions seem endlessly bearish.
Just look at oil stocks over the past month. Any disciplined trader could’ve made a killing trading this sector over the past few weeks.
That said, anyone who’s been trading for a while has heard the following saying: ‘the stock market is forward-looking’…
All in all, it isn’t easy trading news-driven markets. You basically need to be a mix between Warren Buffett and Walter Kronkite.
But if you are trading right now — keep the news on. Because one major headline could cause a massive market reversal.