| Classifying News |
News can be broadly classified into two categories:
- Periodic or Recurring: This includes the scheduled releases of news that moves the markets, including interest rate announcements by the Federal Reserve, economic data releases, and quarterly earnings reports from companies.
- Unexpected or One-Time: These are bolts from the blue such as a terrorist attack, a sudden geopolitical flare-up, or the threat of debt default by an indebted nation. As a rule of thumb, unexpected news is more likely to be bad than good.
News can be specific to a particular stock or it can affect an entire industry or the markets as a whole. |
| Federal Reserve Announcement |
Interest rate announcements have always been among the biggest market-moving events. |
| FED Strategy |
Hedging potential downside risk.
- Trimmed positions in highly profitable equity positions to take some money off the table.
- Purchased puts either on specific stocks in the portfolio or on a broad market index like the S&P 500 or Nasdaq 100. Purchasing puts gives the investor the right to sell a stock for an agreed-upon price at some future time. If the security’s market price falls below the agreed-upon price, the investor gains by selling at the higher contractual price.
- Bought a certain amount of inverse exchange-traded funds (ETFs) to protect portfolio gains. These move in the opposite direction of the broad market or a specific sector.
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| Jobs Report |
Traders and investors closely watch the employment level because it has a substantial influence on consumer confidence and spending, which accounts for 70% of the U.S. economy.
Jobs numbers that miss economists’ forecasts are generally interpreted as signs of incipient economic weakness, while payroll numbers that surge past forecasts are seen as a sign of strength. |
| Corporate Earnings Report |
Have a trading strategy in place in advance of an earnings report. Factors that should play a part in this decision include:
- The current state of the overall market (bullish or bearish);
- Investor sentiment for the sector;
- The current level of short interest in the stock;
- Earnings expectations;
- Valuations for the stock;
- Its recent and medium-term price performance;
- The earnings and outlook reported by its competitors.
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