Investors cheered the passage of a debt ceiling bill on Friday that averts a U.S. default, but the biggest driving factor was May’s jobs report, which showed U.S. employers added a seasonally adjusted 339,000 jobs, far more than expected. The data also showed a moderation in year-over-year average hourly earnings growth and a bump up in the unemployment rate to 3.7% from 3.4%, which helped push recession and rate hike fears to the backburner, at least for now. 

On the flip side, the jobs number appears to be too strong for a  Federal Reserve that is trying to slow the  U.S.  economy.  The gain of 339,000 nonfarm payrolls in May, compared with economists’ consensus estimate of 188,000. While the strength might not be what the  Federal Reserve  wants, it’s great news for investors because there continues to be no sign of a slowing economy — let alone a recession.

That said, the figures still underlined worries about sticky inflation and provided ammo to push back against market expectations for rate cuts later this year.

Future Wealth’s View

The soft landing crowd is celebrating and the bears are licking their wounds as continued momentum to take the market higher could come from investors with a massive amount of cash parked in money-market funds who are beginning to feel the fear of missing out at this point. But, instead of rushing into the market on Monday, it is important to view one’s portfolio over a period of time. Here are some numbers to chew on.

The $1000 invested in the S&P 500 on Dec 1, 2021 will now be worth $890 as of Friday this week and despite the recent run up, the $1000 if it was invested in the Nasdaq on the same day in 2021 would now only be worth $850. On the other hand, had the $1000 been invested in a value fund on Dec 1, 2021, the investment would now be worth $991 limiting the losses to a minimum.

In several reports, we had stated how our cautious approach in 2022 in our client portfolios had mitigated big losses due to our timely rotation away from growth stocks to value stocks. As signs of a bull market begin to take hold, we believe it is time to rotate again from conservative value investments into cyclical sectors that have largely been ignored in the recent run up in stocks and those that could begin to outperform as the stock market comes to grips with fading inflation and lower interest rates in 2024. These cyclical sectors are not those that hold NVidia or Marvell but would instead be stocks in sectors such as industrials, healthcare, materials and consumer discretionary that will produce long term returns instead of near term blips.

But wait, there will be more information to parse by the time Fed officials next meet, chiefly the May CPI (consumer price index), which is out on June 13th. You don’t want to miss that announcement before beginning to rejigger your portfolio.