"The economic recovery will not be 'linear' and thus, the month to month change in payrolls will not necessarily be a great snapshot of trend," Lee explained.
Instead, investors looking for an economic inflection point should turn their focus to a more significant indicator: the yield curve. The yield curve charts the difference between long and short-term interest rates. Typically, the curve charts the difference between the 10- and 2-year US Treasury notes, or the 30- and 10-year. Both curves have been steepening since their respective bottoms in 2019 and 2018.
A steepening yield curve typically indicates a strengthening economy, a rise in inflation expectations, and subsequently higher interest rates.And there are plenty drivers responsible for the possible surge in economic growth going forward, Lee highlighted, including pent-up demand, the"substantial reset" in corporate cost structure thanks to improved operating leverage, and significant fiscal and monetary relief from Congress and the Federal Reserve.
To take advantage of the environment, investors should tilt their portfolios towards"epicenter" stocks, or companies that were most damaged by the COVID-19 pandemic. Lee specifically recommended stocks within the consumer discretionary, financials, industrials, energy, basic materials, and real estate sectors, according to the note. Read more:Start your day knowing what traders are talking about.
Is Tom ok he’s been MIA. We need you now more then ever. S&P is between your concern range
fundstrat Great point! But, higher long term interests would discount and shrink the multiples? When, at what interest rates PE multiples become relevant again? $SPX