By Michael Wilson, Morgan Stanley chief US equity strategist
Heading into the last Fed meeting, I thought that the best short-term case for equities was the Fed delivering a 50bp cut without prompting growth concerns. Indeed, Chair Powell was able to thread that needle, and equities have responded favorably. However, I still believe that over the next 3-6 months, equity performance, at both the index and sector/factor level, will be determined more by labor data than anything else.
The next round of employment data arrives at the end of this week. I believe we would need an upside surprise to drive a sustainable cyclical rotation in the US. To be specific, we think the unemployment rate probably needs to decline alongside above-consensus payroll gains, with no material downside revisions to the prior months (Exhibit 1).
