The summer setup for stocks and why this could be the perfect scenario!

Stocks are higher following the strong employment report, equities coming off there best month since January of 2018. It sure feels heading into June which is typically a good month for stocks that you almost have a perfect scenario with where people feel the economy is today. Stocks are upbeat as the jobs report unemployment falls to a twenty year low. It's been a wild week and today gets us back to the fundamentals that here in the U.S. we have a really strong economy. The jobs market is improving, manufacturing (ISM) that number was good we are in an expansionary territory ther, construction that was up, so it was a very good report today. Coming off of a good Q1 earnings reports and we can see that continuing through for the rest of the year. Do you think we ride this to 3,000 on the S&P 500. Part of that has to do with where we think inflation goes, if you see inflation at 2-2 1/2 percent this year. You can get a multiple of about 17.5 times earnings and that will get us there to 3,000 on the S&P 500.I do think it is a tug of war between fundamentals and the macro headline news and today there is no doubt that the fundamentals are winning. But,over time the corporate earnings cycle will dictate what happens. And what dictates the corporate earnings cycle is business confidence and consumer confidence. When you look at consumer confidence you get personal income vs. personal consumption that leads to high consumer confidence because consumption is outpacing income. Capital expenditure on the business side of things that is picking up on the business side. This is a positive fundamental, what looks like a sustainable driver to a game that we believe is going to last a little while longer. I think the next 10% percent in the market will be up. What can possibly move this market higher ? I believe it is a trade-war with china and the resolution of the trade-war with china will allow both economies to grow.There are things to worry about and I don't think that investors are paying enough attention to a select handful of those concerns and the main one is rates and the pace at which rates move higher. It is very clear that we are back to focusing on fundamentals. What are the implications for rising rates and how do they get there. It is the pace of change that really matters to the market. The second thing is credit and credit is absolutely flowing right now. That is the life blood of the economy. When you look at the overall picture of the market which is strong corporate earnings and you combine that with all these negatives that still exist out there and I promise there is going to be another headline nuke that comes in. That will take this market by surprise a little bit and then we focus on fundamentals again.It's a show me type of environment, when we looked at earnings the first time where everyone was wondering if it was peak earnings, are margins starting to compress, or is this a one time aberration. I would add something else to the conversation that the one thing we have to think about going forward into the end of the year is the presidential cycle. This is a mid-term year and you usually see some volatility especially in the second and third quarter and then we can move sharply after we get past this. Historically that is the pattern that is in this mid-term election year, usually the second half of the year is a stock market rally with volatility to the upside.We are not near the finish with respect to the S&P500 and where do we want to play it going into the second half of the year? We recommend that you stay with what has worked. We are overweight tech and you stay with it. During the month of may tech is up 7% percent in the late cycle of a bull market , cyclicals tend to do well and investors are going back into tech because it is like an old reliable. You are not going to get better growth from any other sector. When there is all these uncertainties out there, where there is geo-political or domestic politics and the earnings are there.We like select tech, energy, and consumer discretionary for sectors to invest in now.John C. Verducci 111