"This is what people were hoping for”

July Jobs Report Assessment

• The report was mixed but better than expected, coming in "relatively benign" compared to the market's anxiety over weakness in prior ADP and claims data.
• Household numbers showed some underlying weakness, yet the data was sufficient to reduce immediate recession fears and remove an excuse for investors to remain on the sidelines.
• Clients expressed significant worry about a recession throughout May, which had previously suppressed equity participation.

Market Activity and Volume

• Goldman Sachs' prime book and overall franchise recorded one of the largest notional buy volumes in May, driven by clients chasing beta and expressing risk appetite over four key sessions.
• May trading activity indicates a shift in sentiment, with significant capital deployment occurring as the market rallied.

Volatility Dynamics and Market Structure

• Current volatility suppression is driven by mechanical flows, including approximately $180 billion in AUM within vol-selling ETFs and roughly $1 trillion in corporate buybacks.
• Despite recent compression, implied volatility remains elevated; the three-month $25 call on the S&P 500 trades near 13% volatility, above the pre-rally steady state of 11%.
• Structural uncertainties may trigger future volatility bursts, including:
  • July 9th deadlines regarding tariffs and trade negotiations, with particular difficulty anticipated in the European leg.
  • Ongoing uncertainty regarding the Japanese trade leg.
  • A wave of corporate guidance resets by consumer-facing companies in recent days.

Investment Strategy and Thematic Focus

• The primary constructive trade favors the U.S. market, specifically within the technology and AI sectors.
• AI adoption remains in early stages, currently at roughly 9% among U.S. corporations, suggesting significant runway for capital expenditure and return on investment.
• Client sentiment has pivoted from trade and tariff concerns to a focus on AI, with many investors feeling they lack sufficient exposure.
• Europe faces headwinds; while growth concerns are receding, a lack of growth worries could quickly shift focus to interest rates, causing laggards like the Russell 2000 to underperform.
• Preference is given to secular growth themes and AI over cyclical or value plays.

Forward-Looking Catalysts for the Coming Week

• Market focus will shift from the Non-Farm Payroll (NFP) to the Consumer Price Index (CPI) data.
• While inflation concerns have eased relative to previous levels, rates remain a significant constraint on market valuation.
• Key U.S. technology companies are scheduled to report earnings, with specific attention paid to corporate guidance updates.
• Monitoring will continue for micro-trends regarding whether the second half of Q2 is tracking differently than the first half, particularly among consumer sectors.