Inflation cools and banks print record profits — long JPMorgan and Goldman Sachs
Thesis
JPMorgan and Goldman Sachs both just posted record trading revenues, proving their core businesses are firing on all cylinders. The June CPI report showed prices actually falling, which eases the threat of further Federal Reserve rate hikes. Lower inflation expectations are great for banks because they reduce the risk that high rates push the economy into a recession and hurt loan repayments. With strong earnings momentum and a friendly inflation backdrop, the big banks have a clear runway to continue rallying.
Strategy approach
Build a swing-trading strategy that enters long JPM and GS on the daily chart when US CPI prints negative month-over-month. Entry: place a buy stop order 0.5% above the prior day's high on the CPI release day. Exit: take profit at 4% gain, or exit with a 2% stop loss if the stock closes below its 10-day simple moving average. Hold up to 10 trading days.