Do you guys remember me telling you during the first U.S. presidential debate that the Russell 2000 was going to rally? And about six months ago that tech, basic materials and industrial stocks like FCX would rally?
Well, boy was I right!
But if you’ve been paying any attention to my videos lately, then you know there’s a lot of inflation fear right now.
That’s because inflationary pressure not only means prices of things go up, but that interest rates might also rise because that’s one way to combat inflation.
And when there are fears of interest rates increasing, it impacts tech stocks most because they tend to give us the biggest risk vs. reward ratio in terms of stocks against bonds, which have a fixed return rate.
When you buy a bond, you know exactly how much you’ll get back.
So that’s why I want to show my readers the best way to trade inflation so we can take stock of what’s happening and plan our next move ahead.
The Best Way to Trade Inflation
The bond market has been moving sideways for quite some time now, and the Federal Reserve’s been telling us nonstop that this inflation is transitory and no big deal.
Interest rates and bonds have an inverse relationship. So in theory, if the bond market goes lower, it means interest rates will rise. And if interest rates go up, it means technology stocks should break down.
Anytime people fear that interest rates will rise, the first industry hit the hardest is usually large-cap tech.
But Friday’s Employment Situation Summary hinted something else…
The report said nonfarm payroll employment rose by 559,000 in May — which is important because as soon as this number came out, the bond market broke to a one-month high.
And the Technology Select Sector SPDR Fund (NYSEArca: XLK) did the exact same thing!
So if bonds go up, interest rates go down. And if interest rates go down, that means there’s less pressure on technology…
If what I’m about to say is true (and I tend to be right about these things), there’s a good chance the XLK might break out even higher…
Which should cause the Nasdaq to go higher, too!
So check out my short video below to learn what’s the best way to trade inflation, along with a few large-cap tech names to keep your eye on if the bond market does in fact rally.
Don’t forget to subscribe to our YouTube channel if you haven’t already so you can be notified as soon as we post our next video!
P.S. Thanks to legendary trader Tom Busby finally breaking his silence, everyone now has the chance to grab winning trades and three-day weekends — every week!
Tom discovered a way to tune out all of the noise in the stock market…
I’m talking about gains like 90% on RIOT… 147% on FCX… and even 232% on ORCL.
It’s a little “Tuesday morning tip” that tells him exactly which trades Wall Street could be pushing higher.
So in other words, it’s all of the stocks that could explode within the next 96 hours!
