TradeSmithGPT Has an Idea for You VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Let’s slaughter some sacred cows…
- The June slump wasn’t so slumpy, and it’s almost over…
- Tariffs are not the death knell all the doomsayers say…
- The S&P 500 is not the best retirement benchmark…
- TradeSmithGPT will help you find clarity, and profits, in chaos…
Assumptions scare me and they should scare you… I know, it’s a bit of a cliché to be a contrarian investment newsletter writer. But genuinely… That’s where the alpha comes from. When you see a massive crowd of investors looking one way – especially if they look with eyes full of fear and anguish – it’s often quite rewarding to look the other way. Look at May. If you bought into the narrative that tariffs would destroy the global economy, you are sorely disappointed right now. The S&P 500 is more than 5% higher than the high set on April 2, moments before President Donald Trump’s Liberation Day announcement. And despite concessions and negotiations, there are more tariffs in place now than there were on April 2. The 10% baseline tariff is in effect. China’s tariffs are higher. Steel tariffs are higher. And auto tariffs are in place where they weren’t before. Nonetheless, investors are happier to pay a higher price for stocks today than they were before all of this took place: 
If you instead read TradeSmith Daily and understood that the tariff overreach was textbook Art of the Deal, then you had a great case to buy. (Granted, I was not full-on bullish when I wrote this linked piece, but I did lay out plenty of reasons to doubt the crash.) That’s not to say doomsayers are never right. They are… occasionally right for a short time. If you’re a doomsayer, you have to make your move quickly. Most folks are not tuned for that. If you wanted to make money shorting stocks before Liberation Day, you had less than a month to close your position. There’s a lot of risk in that setup. Little room for error. And I just don’t think most people want to actually trade this way. Truth is, the long arc of investment history bends toward progress and positivity. As we’ve discussed, humans are inclined toward having positive expectations about the future. Couple that with the simple truth of an inflationary, fiat-based monetary system, and we have a terminally rising floor on asset prices, give or take a pullback every so often. We’re fed bearish narratives from the investment media because fear and uncertainty drive reliance on these outlets and translate into revenue. As I’ve pointed out before, our business does not bow to this incentive structure. Trust, not attention, is our currency. And so we share our honest thoughts with you at all times. I was thinking about all this over my coffee this morning. And I came to the realization that the market is full of dangerous assumptions that we should frequently reassess. We should reassess seasonal assumptions. We should reassess our assumptions about history. And we should even reassess to our assumptions about the best places to put our retirement portfolio. Let’s slaughter some sacred cows today, and then talk about what’s easily the most exciting AI innovation in the history of our business. | Recommended Link | | | | Starting as soon as 7 days from now, you could go for 10X gains from potentially historic AI announcements. How? By following a market signal discovered by master trader Jonathan Rose. He calls it the “Big-Money Tell.” And it gives him a way to invest just before potential major AI-related announcements send stocks flying. He even used the signal to recommend GameStop to his followers before it soared up to 10,633%! Jonathan believes the next big AI-related announcement is coming soon. It’s virtually inevitable. And you can use his “tell” to potentially invest BEFORE it happens… starting as soon as 7 days from now. How? Click here for the full details from Jonathan. |  | | The seasonally bearish period is done… A few weeks back, I showed you that “Sell in May” is an investment dogma that should really be put to bed. For the whole of the 21st century, June has been the month to sell… And it’s hardly a bloodbath of a month. That’s held true this June. The S&P 500 is currently up about 0.9% for the month of June. But it’s 1.5% off the June high. It’s been choppy. Friendly reminder that seasonals are not meant to be a crystal ball. They just show us what investors have tended to do on the margins, and how that might apply going forward. That in mind, let’s see what’s ahead for seasonality… and look at further evidence against the dogma of a summertime stock market lull. 
You can see that TradeSmith’s data was fairly accurate for the month so far. The peak for the month in our data came on June 8, and the actual peak was June 12, about four trading days later. Nonetheless, what’s important is what the seasonals suggest is coming. From today (June 20 as I write) through June 24, next Tuesday, SPY has historically fallen an average of about 1% and has been negative 66% of the time. But the June 24-July 29 period is a strongly bullish seasonal window. One hundred percent of the time, SPY has been higher for an average return of 3.77%. Post-election-year seasonality even looks a bit better: 
Here our seasonality indicator troughs on June 23 (today) and peaks on August 2 for a 5.21% average return and a 100% hit rate of trading positive. How to trade this? Simply have some cash ready to buy into a potential decline early this week, and hold strong through the end of July. But be prepared – modern seasonality does show a pronounced downturn from August through mid-September. And here’s your catalyst next week… Next Thursday is the quarterly GDP print. That will show us if the economy contracted, as many expected, during the quarter where tariffs were put in place. The latest Atlanta Federal Reserve GDPNow estimate, warts and all, currently forecasts real GDP expansion of 3.4% in the second quarter. Let’s put the pieces together of what happens if we see such a print… Investors would quickly surmise we’re in an economy of slowing inflation, rising liquidity, and expanding productivity. That is, yet again, a “Party Like It’s 1995” kind of setup. Here’s those three data points stacked together over the last five years: 
And here’s what those same datapoints looked like back in 1990-1995: 
Note how COVID skews the axes here. The last two years have been relatively normal. But what’s important is that the trend is the same. M2 is expanding, inflation is moderating, and GDP is positive. That’s a recipe for a booming economy and stock market. And if we do see a hot GDP print, we’ll have to slaughter another sacred cow – that tariffs cause recessions and depressions. Many people accept that the Smoot-Hawley tariffs caused the Great Depression – namely due to mainstream media fearmongering about the current tariff experiment. But the fact is that the stock market crash occurred a year before the tariffs went into effect, and the Depression was much more to do with a classic speculative bubble bursting and the ensuing bank failures destroying wealth across the country. We do not have the conditions for a speculative bubble to burst, nor do we have the conditions for bank failures. The Fed found its line in the sand on interest rates with the bust of Silicon Valley Bank, and that correlated with the peak of the hiking cycle. AI is a speculative trend, but one that is thus far supported by earnings – not precisely like the dot-com or electrification bubbles of the 1990s and 1920s, respectively. Tariffs probably didn’t help too much in the Great Depression. But they did not cause it. Another sacred cow slaughtered. And while we’re at it, let’s bring the most sacred of cows into the slaughterhouse… Regular readers know I’m pretty fired up about mid-cap stocks right now, and for good reason. Mid-caps are trading at their lowest relative valuation to the S&P 500 in 22 years… 
Despite having the strongest historical returns of any S&P market-cap benchmark going back to 1991. Yes, even better than small caps: 
Large caps are the sacred cow here. Everyone is told to buy S&P 500 index funds and sit on their hands when it comes to their retirement accounts. In actuality, history supports allocating much more strongly to mid- and small caps. (Tech is its own beast – the Nasdaq 100 is up more than 8,000% since inception, but with much higher risk.) That outperformance has lagged significantly in the last few years, as high rates and slower GDP growth weighed on these smaller firms. But if inflation is going to slow, rates are going to slowly come down, and the Trump admin wants to run the economy hot… That sounds like a great setup for mid-caps to me. That’s why I’m constantly searching for gems in my mid-cap screen. Here’s the latest top 5 by Quantum Edge score, by the way (and click here to play with these Screener settings yourself, if you’re a subscriber)… 
A lot of interesting, cheap, profitable (P/E above 0), high momentum (up 25% or more year over year), pretty unknown mid-cap names in here. Names with the potential to become knowns as they grow into their valuations and beyond. We’re also working on something really cool involving mid-caps, which I plan to share directly with you here in TradeSmith Daily starting very soon. Here’s a sacred cow we can’t slaughter… A universal truth of markets is that no one – not me, not you, not the world’s most successful hedge fund, and not your Uber driver – knows what’s going to happen next. People can and do spend hours researching, timing entries, charting breakouts… and still get blindsided. And it’s even worse right now. Volatility is higher. News cycles are faster. Posts on social media can send stocks soaring or crashing in minutes. You could be right about the direction of a stock… and still lose money because you were wrong about when. Nobody can tell the future. But you can give yourself an edge. What if you didn’t have to rely on instincts and news cycles? What if, instead, you had something smarter working in your corner… Without bias, without fatigue, and without the gut-level uncertainty that defines so much of retail trading? Confession time: I’ve been a little skeptical about the whole AI trend the past few years. ChatGPT is cool, and sometimes pretty useful, but I would never even think about using it to trade. However, I recently got my hands on what our data team has quietly been building for the last few months. This is no large language model. This is what we call a “large number model” (LNM)… that we’ve named TradeSmithGPT. It’s a whole new type of AI that’s designed to give you an edge, especially in chaotic times like we’re in now. Not only can it identify the direction a stock is going to go… But it shows you the exact type of trade you can execute to capitalize on it. But in this day and age, seeing is believing. So on Wednesday, June 25, at 10 a.m. Eastern, we’ll reveal the full details of this project for the first time… including how you can use our LNM technology to make smarter trades, and harness this year’s volatility to help you make money. And until then, you can take a limited-time test drive of our new LNM technology on a curated list of stocks. Sign up here, get the instructions to check out TradeSmithGPT in action, and we’ll see you later this week. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily | 
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