The stock market soared on Friday, May 5 after strong April jobs data confirmed that the U.S. economy is not on the brink of recession.

Some pundits are writing off the big rally as a “one-time occurrence.” 

It isn’t. 

We think the jobs report confirmed that a big summer stock rally is headed our way. 

Here’s the thing. Right now, the stock market is volatile, searching for stable middle ground. And this recent jobs data was the perfect Goldilocks report.  

Wall Street doesn’t want red-hot economic data right now because it will give the Fed ammunition to keep hiking rates. 

But it also doesn’t want ice-cold economic data because it will further suggest that the already-slowing U.S. economy may be on the brink of recession. 

No more rate hikes and no recession – Wall Street wants a soft landing. It wants a Fed pause and a stable economy. 

And in order to get that, you need Goldilocks economic data. 

That’s exactly what we got yesterday. 

Parsing Through the Perfect Jobs Data

The headline job creation numbers in Friday’s report were great. The U.S. economy added 253,000 jobs in April. And that is simply too high for a recession to be just around the corner. 

Typically, whenever the U.S. economy is adding more than 250,000 jobs per month, it takes at least six months – and, more often, one to two years – before the economy starts losing jobs or before a recession kicks in. 

Therefore, yesterday’s big headline job creation number strongly suggests that if a recession is coming, it is at least six months away – and likely a full year or two away.

However, the job market’s leading indicators are weakening and suggest that this red-hot job growth pace won’t persist. 

Over the past 30 years, bank lending standards have proven to be a very powerful leading indicator for the job market. When bank lending standards tighten significantly, the labor market starts to fall apart over the next two to three quarters. 

Bank lending standards started to tighten significantly in early March after Silicon Valley Bank’s collapse. And they have continued to tighten into May as more banks like First Republic, PacWest, and others have come under intense stress. 

This suggests that the very strong job growth we’re seeing right now will cool throughout the rest of the year. That also means that the Fed doesn’t need to hike rates any more to cool off the job market. It’s already put the forces in motion, if you will, for this job market to weaken.

Putting it all together, yesterday’s jobs data was hot enough to prove the economy isn’t going into a recession any time soon, yet cool enough to suggest the Fed doesn’t need to hike rates any more. 

It was a lukewarm print. 

You know who likes lukewarm things? Goldilocks – and Wall Street. 

The Final Word

Wall Street cheered yesterday’s jobs data with a big rally. 

This isn’t a one-time thing. It is the start of investors realizing that their dream of a “soft landing” is coming true. 

We’re confident that over the next few months, the Fed will stop its rate-hiking campaign. Meanwhile, the economy will avoid a recession due to job market resilience. As each economic report makes that outcome more visible and likely, stocks will keep pushing higher. 

I suspect we will see a lot of days like yesterday over the next two to three months. 

Are you prepared to capitalize on them?

We are. In yesterday’s big stock market rally, our stocks were leading the way, with several rallying more than 10%!

Join the party, and position yourself for potentially huge gains in the coming summer stock rally. 

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.