As we noted in both the Monday Morning Kickoff and Tematica Investing this week, we are on the cusp of the earnings storm, with no real incremental domestic economic data out until later today and again tomorrow. For the most part, the news flow that we have gotten has not been all that bullish:

• Falling China exports.
• Germany selling 10-year Bunds with a zero percent coupon — issuing benchmark debt with a negative yield for the first time in history.
• Japan lowered its 2016 growth forecast to 0.9 percent from 1.7 percent.
• Malaysia’s central bank, Bank Negara Malaysia, lowered its key interest rate 25 basis points to 3.00 percent. Officials from Bank Negara said, “Global growth prospects have also become more susceptible to increased downside risks in light of possible repercussions from the EU referendum in the United Kingdom.”

With the likelihood of more monetary stimulus coming, which will only make the US dollar relatively stronger, we continue to favor the PowerShares DB US Dollar Bullish ETF (UUP) August 2016 $25 calls (UUP160819C00025000) that we added to the Tematica Select Listlast week.

Behind all of that, the domestic equity markets dipped only modestly yesterday from the new record highs we discussed in yesterday’s Tematica Investing, in which we broke down Alcoa’s (AA) June quarter earnings. Quarterly results from Fastenal (FAST) and CSX (CSX), which only beat expectations due to a lower tax rate and near 4 percent drop in its share count year over year, cited continued US dollar headwinds and a tepid economy.

Cobbling these pieces together tells us we are heading for volatile waters in the coming days as the velocity of earnings reports kicks into higher gear.

If you’ve read our commentary over the last few weeks then you know this isn’t a surprise to us and it means risk averse investors will be looking for safer ports, while more risk tolerant ones will be making more aggressive bets. We’ve got our inverse ETF positions in place, and all three continue to be Buy rated given the degree of uncertainty coinciding with a new market high.

At some point between the uncertainty, the economy, and US dollar headwinds, something has to give.

Our data driven view has been the Fed is not likely to boost interest rates until late 2016 at the soonest. That view was re-affirmed this week when Minneapolis Fed President Neel Kashkari said the Fed is coming up short on both its employment and inflation goals. Factor in the Eurozone uncertainty, and it means interest rates will more than likely stay at current levels for several more months. This means higher dividend yielding stocks will continue to be in vogue, and should get yet another boost as investor re-asses growth expectations for the back half of 2016. 

One of the stronger performers thus far in 2016 has been AT&T (T), which has done handsomely for the Tematica Investing Select List. The combination of the sticky consumer business and still attractive dividend yield continue to make it a favored port for nervous investors. Despite what may be happening in the economy, consumers will continue to pay for their mobile service as they still need to be a part of our increasingly Connected Society.

To capture incremental upside in T shares over the coming weeks, we are adding theAT&T (T) September 2016 calls that closed last night at 0.39 on the Tematica Pro Select List with a Buy rating. We would be comfortable adding the calls up to 0.47 and to manage risk we are setting a protective stop at 0.25.

On a different note, when we decoded Alcoa’s earnings yesterday, we pointed out the favorable longer term prospects for the global aviation market. Over the last few days at the Farnborough International Air Show, both Boeing (BA) and Airbus (EADSY) have been racking up new orders, extending already multi-year backlogs in the process. We are starting to do some legwork to identify a well positioned company with a compelling and well priced call option for the Tematica Pro Select List as part of our Rise & Fall of the Middle Class investing theme.