Two Strong Setups for the Coming Rally

In the world of trading, staying ahead of the curve is paramount. Recent market dynamics, particularly concerning job growth and tariff actions, are presenting potentially lucrative setups for savvy traders. With February’s ADP job report revealing a slowdown in job growth, investors must heed the insights and prepare for strategic trades that could capitalize on forthcoming market movements.

Understanding Market Sentiment: The Slowdown in Job Growth

The recent ADP report for February showed that job creation lagged considerably, with only 77,000 workers added compared to January’s adjusted 186,000. As ADP’s Chief Economist, Nela Richardson, points out, uncertainty in policy and reduced consumer spending may have driven layoffs or hiring slowdowns. This apprehension has kept a lid on investor confidence since mid-February, particularly as concerns mount regarding the long-term implications of tariffs on corporate earnings, consumer behavior, and inflation.

Tariff Developments: A Bright Spot Amidst Uncertainty

However, there’s a glimmer of hope. Currently, markets are reacting positively to President Trump’s announcement of a one-month tariff exemption for major U.S. automakers. Commerce Secretary Howard Lutnick’s hints at lowering tariffs on Canadian and Mexican goods add more fuel to the recovery narrative. Though tariff reductions won’t eliminate the burden on Wall Street, they could potentially pave the way for a rally, boosting investor sentiment and market performance.

Analyzing the Pullback: How to Navigate the Correction

As it stands, the S&P 500 is down approximately 5% from its recent high—a far cry from the 10% mark that constitutes an official market correction. Historically, corrections have occurred roughly every 1.84 years, with the last one hitting in 2022. Given this timing, traders need to be aware that the current pullback is well within historical norms.

American Century Investments has identified that during these corrections, when the index pulls back 10% without spiraling into a bear market, the average recovery involves a drawdown of 14% that lasts about four months. Staying invested during these pullbacks has proven to be a wise strategy; since 1974, data shows that the S&P 500 has averaged more than a 8% increase just one month post-correction, and over 24% a year later.

Mighty Gold and Gold Miners: An Opportunity Awaits

Gold is nearing its all-time highs yet, intriguingly, gold mining stocks remain undervalued. Even though gold prices have surged almost 50% since 2022, the VanEck Gold Miners ETF (GDX) has seen minimal movement. Typically, these mining stocks amplify gold’s price moves—however, we haven’t seen that dynamic this time around. Barron’s reported that gold miners are currently trading at a staggering 44% discount compared to the S&P 500’s forward price-to-earnings average.

Reasons for this underperformance are multiple: rising operational costs due to inflation, increased regulatory expenses, and poor capital allocations among some mining firms. But here’s the catch: despite these hurdles, the valuations are still compelling. Traders looking to seize opportunities might want to consider stocks like Agnico Eagle Mines (AEM) and Alamos Gold (AGI), or simply keep an eye on the GDX for broader sector exposure.

Are You Ready to Be Greedy?

Market fear, as indicated by CNN’s Fear & Greed Index, is currently at extreme levels. Following Warren Buffett’s sage advice—being greedy when others are fearful—traders should scout for promising prospects. Data from TrendSpider reveals that buying the Nasdaq 100 ETF, QQQ, whenever it’s down 10% relative to its 20-week high has historically resulted in an average six-month return of 13.5% with an 82% win rate.

For those with a taste for leveraged plays, Eric Fry, editor of Leverage, has highlighted a gold mining stock currently trading at just six times EBITDA—around a 40% discount relative to the Philadelphia Gold and Silver Index (XAU). This setup could indeed be a golden opportunity.

Final Thoughts: Seizing the Moment

Market pullbacks are not just normal; they are opportunities waiting to be seized. History has shown us that such dips often precede significant rebounds. Rob Arnott, a billionaire investor, once stated, “In investing, what is comfortable is rarely profitable.” And let’s not forget J.P. Morgan’s memorable reminder: “In bear markets, stocks return to their rightful owners.” If you can navigate short-term turbulence, today’s pullback could be your ticket to strategic investments that thrive in future rallies.

Time to get sharp, stay informed, and embrace the trend, traders!