INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good. We expect broadening of rally on "soft landing" thesis

INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good.  We expect broadening of rally on soft landing thesis
INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good.  We expect broadening of rally on soft landing thesis

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INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good.  We expect broadening of rally on soft landing thesis

Equity markets managed to break to 2023 closing and intraday highs today, taking YTD gains to 11.6% (+2.5% for the month) and now within striking distance of S&P 500 4,300.

  • Today was a decisive day for markets, and two things really stood out.
  • First, the case for a “soft landing” strengthened today on the heels of the May employment report. While the jobs added was strong (+339k vs +195k Street), it was
    – soft hours worked +34.3 (Street 34.4)
    – soft avg hourly earnings AHE +4.3% YoY (Street +4.4%)
  • As our clients recall, we flagged the AHE as key and below 4.4% was important. That is what happened and that strengthens the case for a Fed pause and also a soft landing. Thus, overall great news.
  • Second, today highlighted that in this “game of inches,” bearish positioning is so common that even a mild “beat” on economic data triggers an explosive response. This is the more critical takeaway. Yes, positioning is still far more bearish than many admit.

STRATEGY: Expect broadening of rally given “soft landing” strengthening

The key takeaway is that we now expect the market to broaden, as a soft landing means the Fed will continue to tolerate easing financial conditions and also pause. What does broadening mean?

  • stick with FAANG but focus on the laggards like META AMZN TSLA and NFLX (we flagged this morning)
  • expect Regional Banks to continue to be bid as KRE +6% today and we continue to recommend a tactical overweight given temporary Fed put
  • expect Industrials to get a bid XLI as this affirms the easing of financial conditions and the bottoming of PMIs. Recall,

INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good.  We expect broadening of rally on soft landing thesis
Source: Bloomberg

As shown below, Goldman Sachs Economists (flagged by @Carlquintanilla) expect Fed to be on pause. This is a positive.

INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good.  We expect broadening of rally on soft landing thesis
Source: Twitter.com

We expect the laggard FAANG to catch a bid and as we highlighted this morning, those stocks are:

INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good.  We expect broadening of rally on soft landing thesis

We also stick with our tactical upgrade of regional banks which we initiated on 5/7. The regional banks made a multi-month high today.

INTRADAY ALERT: May jobs show soft earnings growth = soft landing = Fed pause = good.  We expect broadening of rally on soft landing thesis
Source: Bloomberg

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34 Granny Shot Ideas: We performed our quarterly rebalance on 4/26. Full stock list here –> Click here

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