With the U.S. employment market continuing to add new opportunities, the Federal Reserve needed a win in the form of a lower-than-expected print. It got that for the month of April. However, one datapoint isn’t going to solve all of the central bank’s issues, which presents a cynically positive framework for Canadian gold mine Iamgold (IAG).
Previously, the economy continued to add non-farm payrolls above economists’ estimates. However, this positive trend stopped last month. According to the Associated Press, the April jobs report saw 175,000 new positions added. That was down sharply from March’s blockbuster print of 315,000 and was below expectations for 233,000 in April.
As the news agency pointed out, “the moderation in the pace of hiring, along with a slowdown last month in wage growth, will likely be welcomed by the Federal Reserve, which has kept interest rates at a two-decade high to fight persistently elevated inflation.”
Not surprisingly, IAG stock was muted following the latest employment numbers. However, sentiment picked back up thanks to the underlying company’s strong first-quarter earnings results. Earnings per share landed 11 cents on revenue of $334.08 million. In contrast, Wall Street analysts were targeting EPS of 3 cents on sales of $286.44 million.
Iamgold President and CEO Renaud Adams noted that the company “started 2024 with very strong performance across its operations, projects and in health and safety.” Further, the head executive mentioned that the miner reported production of 151,000 ounces of gold.
Now, it’s true that the immediate framework suggests a disinflationary environment given the labor market deceleration. However, the Fed is also eager to lower interest rates, which should boost gold and thus IAG stock.
IAG Stock Lights Up Unusual Options Screener
Following Thursday afternoon’s Q1 earnings disclosure, sentiment in the market was robust the following day. Not surprisingly, then, IAG stock represented one of the top highlights in Barchart’s screener for unusual stock options volume. This useful tool shows where the smart money may be directing its funds.
On Friday after the close, total volume for IAG stock options reached 5,117 contracts against an open interest reading of 42,527. Against the trailing one-month average metric, volume for the May 10 session reached 415.83%. And significantly, call volume hit 4,935 contracts against put volume of only 182.
On paper, the aforementioned pairing yielded a put/call volume ratio of 0.04, indicating at face value extreme optimism. Interestingly, Barchart’s options flow screener – which filters exclusively for big block transactions likely made by institutions – shows a relatively even number of transactions between bullish and bearish-sentiment trades. However, the greatest premiums stem from pessimistically oriented options.
In fairness to the bears, skepticism still reigns over IAG stock. Yes, shares have gained over 76% on a year-to-date basis thanks to the dramatic swing higher off the robust Q1 earnings print. However, over the past five years, Iamgold has moved up around 81%. That’s basically the same market performance as the SPDR S&P 500 ETF Trust (SPY).
Stated differently, investors didn’t have to go through all the drama of IAG stock, which doesn’t pay a dividend. Instead, they could have just owned shares of the equities benchmark exchange-traded fund. Still, it’s possible that Iamgold can finally make good on its earlier speculative promise.
Based on the technical framework, it’s possible that IAG stock has formed a long-term cup-and-handle formation. Breaking out of the last leg of the pattern, IAG may be poised to break new ground. It’s a speculative idea, no doubt. However, with the fundamentals potentially moving in a favorable direction, things might get interesting for the gold miner.
Fed Wants to Cut Rates
While the economic rumblings have clouded the monetary policy narrative, the Fed for the most part has eyed raising interest rates as a painful but temporary directive to control inflation. Once accelerating consumer prices are under control, the central bank will likely attempt to reduce the burden of borrowing money.
True, the Fed must take into account the negative impact of rising inflation. However, raising interest rates likely cannot be a permanent solution as it crimps economic activities, such as home ownership. The problem with higher rates is that it disrupts not only economic endeavors but the natural cycle of society: the formation of new households and families.
Disrupt this cycle and the U.S. could face catastrophic damage. Therefore, one way or the other, interest rate cuts will probably be coming. And that may position IAG stock on viable ground.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
