With negative headlines continuing to hit the tape, the U.S. equity continues to climb the wall of worry as the bears get louder and louder, voicing both their displeasure and amazement. Our work continues to be medium term constructive and still supports a barbell approach towards secular growth/FAANG and Values/Cyclicals.

Given the riots across the country and rising US-China tensions, the bears are vocal that the current move is unjustified and will end painfully at any minute. However, based on our work, we do not support this negative outlook and have been advising investors to keep their eyes on the bigger picture —the economy is beginning to heal and there is massive monetary/fiscal stimulus to fuel equity prices on a 6-12 month view.

We reiterate our main conclusions since 3/20, when our key indicators flashed buy signals for the S&P 500. Our key conclusions are as follows.

➢ Despite the possibility of tactical consolidation/pullback, we are constructive on US equities for 6-12months and are viewing tactical weakness as a buying opportunity.

➢ Our work indicates that (1) the low for the S&P 500 index (SPX) is in and there is a chance the benchmark index could make new HIGHS before the year is over, and (2) the market is NOT extremely overvalued as some are fearing. Instead, our research suggests an SPX target range of 3600-4400.

➢ We are still recommending a barbell approach that includes a mix of FAANG/secular growth stocks and cyclicals/value equities as Overweights and defense and cash as Underweights.

➢ There have been clear signs of healing as shown by our proprietary earnings revisions work, which completely supports the ongoing rally.

GROWTH/TECH CONCLUSIONS

From a tactical perspective, some of our preferred multi-factor models have rolled over for Tech, as an overall proxy for Secular Growth/FAANG. That said, the entirety our indicators suggest that the relative performance pause/pullback will likely be short-lived and small magnitude.

From a strategic view, Tech’s key earnings revision metrics are quite supportive. Thus, we are NOT suggesting that any investors abandon Secular Growth/FAANG/Tech.

FINANCIALS CONCLUSIONS

From a tactical perspective, our preferred indicator is showing signs of positively inflecting versus the overall market, which has historically been a bullish occurrence. When digging deeper, the sector looks particularly attractive on this basis versus Energy, Materials, Staples, Health Care, Utilities, and Real Estate.

From a strategic view, key earnings revision metrics for Financials suggest the biggest theme is things are less bad. Our readings back solid relative performance gains going forward. Hence, we reiterate our “above benchmark” view for the sector.

Disclosures (show)

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