The jobs report beats expectations… how to invest in the coming era of humanoids… Microsoft lays off more workers… more from Jonathan Rose on divergence trading
A quick note before we dive in today…
Our offices will be closed tomorrow in honor of Independence Day. If you need assistance from our Customer Service team, they’ll be happy to help when our offices reopen on Monday.
We hope you have a wonderful July 4th with friends and family!
The government’s nonfarm payrolls report came in stronger than forecasted
Whereas economists had expected a 110,000 increase for June, the number came in at 147,000. This soothed investors who were on edge after yesterday’s ADP private payrolls report hinted at growing weakness in the labor market.
The unemployment rate ticked lower from 4.3% to 4.1%. While this appears positive, it’s primarily due to a drop in the number of people working or looking for jobs. The labor force participation rate fell to 62.3% – the lowest level since 2022.
The report came out before the opening bell. At first, stock futures popped as traders applauded the economic strength. Minutes later, the gains pulled back upon recognition of what that labor market strength means…
No interest rate cuts from the Fed in July – possibly even September.
To illustrate, let’s go to the CME Group’s FedWatch Tool. This shows us the probabilities that traders are putting on various fed funds target rates at different dates in the future.
Between yesterday and today, traders have ramped up their bets that the Fed will hold rates steady at the July FOMC meeting in a few weeks. Yesterday, those odds came in at 76.2%. As I write Thursday, they’ve popped to 95.3%.
The more interesting change comes from expectations for September. Yesterday, traders were all but certain the Fed would cut in September, with odds at 93.7%. Today, they’ve fallen to 73.3%.
The good news is that stocks shook off their grumpiness, refocusing on the bullish implications of this morning’s report – namely, we have a strong economy capable of powering earnings, growth, and higher stock prices. This is driving the market to fresh all-time highs as I write.
Bottom line: Let’s enjoy the rally as we adjust to an extended period of “wait and see” from the Fed.
Imagine walking into your home a few years from now and casually handing your humanoid assistant a grocery list…
But that’s just the start.
You also ask it to clean up the kitchen, move your clothes from the washer to the dryer, then bring you a bottled water in a few minutes when you’re on your rowing machine.
This is a reality that’s coming.
Today, most people still picture humanoid robots as sci-fi dreams or clunky prototypes. But in labs and private factories across the world, these machines are already walking, learning, and lifting.
Tesla’s Optimus is folding laundry… Figure’s robot is stocking shelves… Sanctuary’s AI-powered humanoid is operating tools and handling logistics.
Oh, and a team of Chinese humanoids just played a soccer game.
Here’s our technology expert, Luke Lango, from his Innovation Investor Daily Notes:
[Last] weekend, humanoid robots played soccer in China. Seriously.
Two full teams, two 10-minute halves, all robots, with a final score of 5-3.
Of course, they looked more like tipsy toddlers than Messi and Mbappé; but it was still an impressive demo of robotic balance, agility, and real-time decision-making.
The leap from novelty to normalcy is approaching faster than the public realizes
Once these robots can perform basic, repetitive tasks as well as a human – and then scale – that’s a tipping point.
They’re starting right now in warehouses and factories, transforming labor economics. But the next stop is your home. Cooking. Cleaning. Assisting the elderly. Helping raise children.
We’ll soon look back and wonder how we ever managed without them, much like we do today with smartphones.
Let’s return to Luke:
Still skeptical?
Look at Tesla’s (TSLA) Optimus, and let’s talk numbers:
- Tesla has already begun deploying Optimus internally.
- Elon Musk has said Tesla expects to have “thousands” of Optimus robots working in its factories by the end of 2025, and later mentioned a target of 5,000 units, with parts capacity reaching 10,000- to 12,000 robots.
- Production could scale quite quickly after that, so long as the company doesn’t encounter too many headwinds with sourcing necessary materials.
- As such, Tesla’s market cap, fueled by Optimus, could rise from $1 trillion today to $25 trillion by 2030. Now, that may be partly wishful thinking – but it is also Musk’s roadmap, and Wall Street is starting to take notice.
What’s our investment action step?
Investing directly in Tesla is one option. But market historians know that the broader humanoid ecosystem could provide even more lucrative opportunities.
To illustrate, let’s recall Apple and its revolutionary iPhone.
Yes, Apple’s stock has exploded since 2007, the year the iPhone debuted – it’s up about 8,000%.
But over the same period, one of Apple’s components suppliers – Broadcom – has destroyed that performance. See for yourself…
Below, we look at Apple and Broadcom since the start of 2007.
If you’re having trouble seeing the chart, AVGO’s stock has returned more than 20,000% compared to Apple’s return of almost 8,000%.
This is what’s possible when smaller components companies become critical parts of the supply chain for a groundbreaking technology product.
Back to Luke:
Every revolution has its ecosystem.
Just as the iPhone created fortunes for component suppliers like Skyworks (SWKS) and Cirrus Logic (CRUS), Optimus will likely mint new industrial titans as demand for chipmakers, sensor suppliers, actuator specialists, and materials innovators takes off.
These components makers will be supplying the eyes, brains, muscles, and bones of the robot revolution. And they could see 10X, 20X, even 50X growth as a result…
For those with the foresight to act now, the potential rewards could be enormous.
Luke recently put together a free research video on some of the small suppliers on his radar today, which you can check out here.
We’ll continue bringing you more ideas in the days to come. But this “picks and shovels” approach is going to be high on our list.
After all, we don’t know which tech giant will release the humanoid that becomes the “go to” winner for consumers – but all the humanoids battling for that title will require similar critical components.
More on this to come.
More jobs lost to AI
Yesterday, Microsoft announced fresh job cuts affecting roughly 9,000 employees – about 4% of its workforce.
The layoffs span several divisions, including its Gaming unit, which recently absorbed Activision Blizzard.
In a memo to employees, Microsoft Gaming CEO Phil Spencer explained:
To position Gaming for enduring success and allow us to focus on strategic growth areas, we will end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness.
“Removing layers of management.”
What’s really happening is that Microsoft is retooling its workforce for an AI-driven future.
The company is trying to get leaner, faster, and increasingly automated. I should point out that this is the third round of Microsoft layoffs this year.
Here’s the AP News:
The company has repeatedly characterized its recent layoffs as part of a push to trim management layers, but the May focus on software engineering jobs has fueled worries about how the company’s own AI code-writing products could reduce the number of people need for programming jobs.
Microsoft CEO Satya Nadella said earlier this year that “maybe 20, 30% of the code” for some of Microsoft’s coding projects “are probably all written by software.”
In our Tuesday Digest, I wrote:
As AI begins to replace not just factory and warehouse workers but customer support reps, paralegals, software engineers, and even parts of middle management, that painful economic squeeze will move up the income ladder.
And the higher it goes, the closer we get to an economic earthquake.
Things are rumbling.
Circling back to our series on trading
Over the last two weeks, we’ve featured a series profiling different ways of trading.
We believe trading is an increasingly indispensable tool for every investor’s toolkit – especially given this year’s enormous volatility that has left buy-and-hold investors with ho-hum returns so far.
Yesterday, we looked at how veteran trader Jonathan Rose trades divergences. Here he is with a brief recap:
You’re looking for moments when stocks that usually move in line suddenly diverge. Then you place trades that profit when they come back in line again.
I don’t make binary bets on whether a stock will go up or down like most rookie traders do.
Instead, I look for relationships between stocks that usually move together – but occasionally break apart. Then I bet on those relationships coming back into line.
Today, let’s look at how Jonathan used this approach to make 100% back during the Liberation Day panic.
In April, as the market collapsed and surged based on tariff fears and hopes, Jonathan spotted a divergence between Brazil and Mexico
Usually, their stock markets move in line with one another. But given Mexico’s role in car manufacturing, it was selling off due to fears of President Trump’s prospective 25% auto tariff.
With this background, here’s Jonathan:
The iShares MSCI Mexico ETF (EWW) and the iShares MSCI Brazil ETF (EWZ) began to diverge – with Mexico suddenly looking cheap relative to Brazil.
Take a look…
That trade was simple: Place a bullish trade on the Mexican ETF and a bearish trade on the Brazil ETF.
The result – a 100% gain in just over two weeks.
Digging into the details, Jonathan took two positions…
He bought a call on EWW (Mexico) and a put on EWZ (Brazil). Both expired about six weeks from his buy date.
Now, just two days later, EWZ had already sold off sharply, so Jonathan’s put was up big. He closed it out for a 117% gain.
EWW sold off too, but Jonathan rode through the volatility, and days later, it was climbing. Jonathan recommended his subscribers sell less than three weeks after opening this leg of the trade for an 84% gain.
Together, the average return was 100%.
So, which type of trader does this suit best?
As we just covered, Jonathan’s trade had two legs with different exit dates. This illustrates how this approach can require more hands-on attention – it’s not a simple “set it and forget it” strategy.
But for more active traders who prefer more action, that’s where the fun begins. This style opens the door to all kinds of tactical opportunities – especially when it comes to adapting to the market’s twists and turns. There’s a reason Jonathan’s go-to phrase is: “Remember, the creative trader wins.”
Bottom line: With Jonathan’s divergence strategy, creativity and agility are a fun, and essential, part of the process.
There’s a divergent trade setting up right now that Jonathan has flagged
Here he is with some quick details:
I think it should be on every trader’s radar right now.
It’s the biggest divergence opportunity I’ve spotted in years – a setup that could be one of the most profitable options trades of the 2020s.
Have a good evening,
Jeff Remsburg
