What’s the Market’s Biggest Risk Right Now?

Scott Bauer of Prosper Trading Academy joins Jeff Praissman to break down the biggest risks facing markets right now. From interest rates and the jobs report to earnings, debt, and sector opportunities, they discuss what could drive the market’s next move and whether traders should keep buying the dips.

Summary – IBKR Podcasts Ep. 432

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hi, everyone. This is Jeff Praissman with Interactive Brokers. It’s my pleasure to welcome back to the IBKR Podcast Studio Scott Bauer from Prosper Trading Academy. Hey, Scott, how are you? 

Scott Bauer

I am great, Jeff. Yourself? 

Jeff Praissman

Well, you know, I actually have a bone to pick with you after Monday night and your Bears dismantled my Eagles. I have to bring it up. I know this is about the markets, but I got to bring it up. We looked terrible. 

Scott Bauer

I mean, I think you guys came in really a little too overexuberant with the fact that we had our third-string quarterback. 

Jeff Praissman

Oh, there it is. 

Scott Bauer

So— 

Jeff Praissman

Well, as much as I would like to spend the next hour talking NFL, I know our listeners are tuning in for the market, so let’s get it started. And even before we do that, you can find more from Scott at prospertrading.com, as well as on our website. Go to ibkr.com, click on Education, and see lots of great past podcasts, webinars, and articles from Scott Bauer and Prosper Trading. 

But, Scott, we’re entering a two-week stretch packed with economic data, as always, right? What’s the one event or report you think traders should be paying the closest attention to right now? 

Scott Bauer

Well, we just got by PCE and GDP, which I think were real big, and I would say overall, pretty muted reaction to it. All eyes are going to be focused on the jobs report this Friday, especially coming off of last month’s, we’ll call it a blowout report. And I think with that one, Jeff, what I’m really looking at is to see: Are there going to be some revisions to that blowout number from last month? 

So that can really kind of affect what the odds of an October hike are going to be, which have been swinging back and forth recently between about 50% and 70%. 

Jeff Praissman

Yeah. And Treasury yields have been kind of back in the news and been a major driver of market sentiment lately. Do you think rates will remain the market’s biggest story over the next couple weeks? 

Scott Bauer

Yes. If I had to kind of rank the next couple weeks, I’d say 1A are rates, 1B would be Iran and what may or may not happen. And then we have earnings. I mean, that’s a couple weeks out, but the market is certainly going to be looking to earnings. But sure, rates are really what is driving the market and the equity market. 

Jeff Praissman

And that kind of leads me perfectly into my next question. So, looking at the market today, what do you think the biggest risk that investors— and here’s kind of a twist to this question, though. What is the biggest risk that investors seem to be kind of comfortable with, actually, at this point? 

Scott Bauer

I think there’s two things. Number one, that earnings coming up are going to rescue the market again, because we have seen just such solid and strong corporate earnings over the last six to nine months. And then number two, I think—and it doesn’t maybe get enough airplay—I think the debt. Because when we look at rates right here, sure, nobody wants to see the 10-year at 5.25, whatever it is, and the mortgage rates approaching 8%. That is certainly a negative here. But I think underlying that is really the overall debt that we have, and how are we going to keep servicing this debt if rates stay at these levels? 

Jeff Praissman

And you mentioned earnings season’s coming up, and this is where we start to kind of get even more details about different sectors, right? So which sector do you think kind of has the best setup heading into early October, and which sector concerns you the most? 

Scott Bauer

So, on the good side, on the light side here, there’s two I’m really looking at. I think the best setup, and maybe a little bit riskier, are the financials. They have been absolutely hammered. You look at a Goldman Sachs, a JPMorgan—it certainly has to do with rates and things out there—but I think that they have just way oversold. So I am really looking for a nice positive push in the financials. I think on the safer side, industrials look pretty good to me. 

Jeff Praissman

Gotcha. All right. And final question, Scott. For active traders, is this an environment where you’d rather be buying the dips, selling the rallies, or just sort of sitting on the sidelines waiting for more clarity? 

Scott Bauer

I think the answer is yes and yes to buying the dips and selling the rallies, right? 

Jeff Praissman

Always, right? Always. 

Scott Bauer

Absolutely. Active traders look for these trends, and we’ve been in this trend for quite a while, albeit all sorts of different data and information coming out affecting the market. But we seem to still be in this trend. That will break at some point. I don’t know if it’s going to be a week from now, a month from now, six months from now. But until that happens, Jeff, you know, trend is your friend, right? That’s what traders say. So I think you still need to trade that and maybe not try and be a hero looking for that potential breakout one way or the other. 

Jeff Praissman

Scott, this has been great, as always. And despite Monday’s results, you’re still always welcome back in the podcast studio. 

Scott Bauer

Much appreciated. 

Jeff Praissman

And again, for more from Scott, go to prospertrading.com. Go to our website, interactivebrokers.com, click on Education, and look for lots of great podcasts, webinars, and articles from Scott and Prosper Trading. 

All right, Scott. Thanks again.