To The Moon

Last week, the U.S. labor market showed signs of unexpected weakness. The job report released on September 5th revealed that employers added only 22,000 jobs in August, while the unemployment rate ticked up to 4.3%. It raises questions about the broader health of the economy, and whether the labor market can continue absorbing shocks without further deterioration.

This week, markets are turning their attention to key inflation indicators: Producer Price Index (PPI) on Wednesday and Consumer Price Index (CPI) on Thursday. These readings are critical because they provide insight into whether inflation pressures are easing or persisting despite slower job growth. Investors are trying to reconcile weaker employment data with ongoing inflation trends, which creates a complex environment for monetary policy. Calls for Fed rate cuts are growing louder, with some speculating that the central bank might ease by 25 to 50 basis points. Historically, the Fed has often moved cautiously in such scenarios, balancing the need to support growth with the risk of letting inflation become entrenched.

Historical Context: Fed Rate-Cut Cycles

Previous Fed rate-cut cycles helps contextualize the current situation:

1. 1995–1996: After aggressively raising rates in 1994 to curb inflation, the Fed paused and later cut rates modestly as economic growth slowed in 1995. This cautious approach allowed markets to adjust gradually, and equities eventually rebounded.

2. 2001 (Dot-Com Bubble): The bursting of the technology bubble caused a sharp slowdown in economic activity. The Fed responded by cutting rates over the year. Equity markets, particularly tech-heavy sectors, experienced significant volatility.

3. 2007–2008 (Global Financial Crisis): Early signs of stress in the financial system, including rising unemployment and softening job creation, prompted the Fed to slash rates. During this period, long-duration Treasuries became a safe haven, with ETFs tracking these bonds delivering substantial returns. Equity markets, in contrast, saw historic declines, highlighting the protective value of Treasuries during crises.

4. 2019 (Pre-COVID Slowdown): Facing global trade tensions and slowing economic growth, the Fed cut rates. Long-duration Treasury ETFs performed well as yields fell, while equities stabilized temporarily. This cycle illustrated that even modest, incremental cuts can have a meaningful impact on fixed-income markets and investor sentiment.

Implications for Today

History suggests that long-duration Treasury ETFs, particularly TLH (iShares 10–20 Year Treasury Bond) and TLT (iShares 20+ Year Treasury Bond), tend to benefit during rate-cut cycles. When interest rates decline, the present value of future bond payments rises, driving up prices. Additionally, these ETFs serve as a hedge against economic slowdowns or recessions, which are now more plausible given the weak jobs report. For example, during the 2020 pandemic-induced recession, long-term Treasury ETFs surged as the Fed slashed rates to near zero and investors sought safety.

iShares 20+ Year Treasury Bond ETF (TLT)

iShares 10-20 Year Treasury Bond ETF (TLH)

Personally, I have never sold my TLT holdings on Tiger Brokers. I have taken profits on TLH in the past, but currently, I am holding steady. In this macroeconomic environment, patience seems prudent. While it’s impossible to predict the Fed’s exact move, whether a 25 or 50 bps cut, or something larger, preparing my portfolio for potential rate cuts allows for positioning that could benefit from both falling rates and increased economic uncertainty.

Riskier Plays and Tactical Positions

On the riskier side, I continue to hold SOXS (Direxion Daily Semiconductor Bear 3X Shares). Semiconductors are highly cyclical and sensitive to macroeconomic conditions. Historically, downturns in the tech sector, such as the 2022 tech sell-off, have produced strong returns for bearish or inverse ETFs like SOXS. Despite currently bagholding, I am not selling. First, I generally avoid selling if I do not have unrealized profits. Second, the weaker job report reinforces my conviction to hold, as potentially slower economic growth could weigh on semiconductor demand, potentially benefiting SOXS.

Direxion Daily Semiconductors Bear 3x Shares (SOXS)

Balancing Defensive and Opportunistic Strategies

I’ve been reminding myself to stay patient in this uncertain environment. With weaker job report and questions about the Fed’s next steps, I try not to overthink or second-guess every move. Holding Treasuries feels like a way to maintain some stability, while selective risk positions allow me to stay open to opportunities without taking unnecessary bets.

It’s more about positioning thoughtfully than predicting outcomes. I try to stay flexible, observing how markets react, and letting the portfolio adjust naturally rather than forcing any single strategy.

Conclusion

No one can predict the Fed’s precise actions. Even the most experienced analysts have been surprised by the timing and magnitude of rate adjustments in past cycles. What history does provide is a framework: weak jobs reports often precede Fed easing, Treasury bonds typically benefit from lower rates, and cyclical sectors react sharply to slowing growth. In this uncertain environment, patience and attention to historical patterns may prove more valuable than speculation.