President Donald Trump’s inconsistent politics have made trading the markets a challenge. But there’s an exception: He is consistent when it comes to self praise, which is a consistency that short-term traders can exploit.
Let's take a look at a specific example from the first week of June:
The President and his administration are privy to certain information prior to its public release. In this particular case, they had access to employment data.
At 8:30 a.m. EST on the first Friday of every month, the U.S. Department of Labor's Bureau of Labor Statistics publicly releases the Employment Situation Summary, known as the "Jobs Report." Senior administration members are briefed on the data the evening before.
As we now know, Trump relishes in espousing his thoughts electronically - oftentimes in a knee-jerk fashion. On Friday, at 7:21 a.m., he tweeted:
Looking forward to seeing the employment numbers at 8:30 this morning.
— Donald J. Trump (@realDonaldTrump) June 1, 2018
Throughout his 17 months in office, Trump has taken personal credit for good news, both political and economic. Continuing this trend, the employment data was impressive. In May , the U.S. unemployment rate dropped to an 18-year low of 3.8%, better than the forecast of 3.9%. Employers added 223,000 nonfarm jobs to their payrolls. And wages grew faster than expected, a sign the tighter labor market is prompting employers to pay workers more. In fact, May marked the 92nd straight month of job growth in the U.S.: a record streak. (See also: The Trump Bull Market Is Far Short of 'Tremendous')
Turning Tweets into Action
When Trump pats himself on the back before the release of any economic indicator, expect the numbers to be impressive. So consider adopting the following market strategies on a short-term basis:
- Go long the U.S. dollar. When a nation’s economy shows signs of strengthening, it makes sense to be long that nation’s currency. In this particular situation, the currencies that will likely trade lower relative to the U.S. dollar, tend to be "safe" currencies like the Japanese Yen and the Swiss Franc. Alternatively, rather than venturing into complex forex trades, go long DXY, an index that is long the US dollar against a basket of six currencies. Another approach would be to buy the Invesco DB US Dollar Index Bullish Fund (UUP) or the Wisdom Tree Bloomberg U.S. Dollar Bullish Index (USDU).
- Short gold and gold-mining equities. Lower demand for flight-to-quality investments also means a weakening gold market. An alternative to shorting gold futures, which requires active and robust risk management, is to buy the Deutcshe Bank Gold Short ETN (DGZ). For equities, look to the Direxion Daily Gold Miners Index Bear 3X Shares ETF (DUST) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares ETF (JDST) (note that both are leveraged).
- Go long the U.S. equity markets. The S&P 500 Index, the Nasdaq Composite Index , the Russell 2000 Index or a blend of all three could make sense: Both large and small cap stocks benefit from strong labor markets. On June 1, for example, equity index futures rallied strongly between Trump's tweet and the opening bell.
- Finally, sell bonds or go long rates. Better employment numbers translate to higher rates. Consider the ProShares Short High Yield Index (SJB), the ProShares Short 7-10 Year Treasury (TBX), the iPath US Treasury 10-year Bear Exchange Traded Note (DTYS) or the Barclays Inverse U.S. Treasury Aggregate ETN (TAPR). For bearish investors, consider leveraged, short fixed income products, like the Daily 20+ Year Treasury Bear 3X Shares (TMV).
Remember, however, that good news can be bad news for the markets. Stronger employment numbers could mean a more hawkish Federal Reserve. That would encourage additional interest rate hikes beyond those already expected. But in this particular case, the market has already baked in a few more rate hikes in 2018, while the Fed's dot plot maintains a steady rate hike course. (Read more: Trump Trade Talk Has Cost Market $1 Trillion: JPM)