Corporate

This week's report discusses whether bad news is good news for stocks, or a potential restraint. Tumbling long-term yields argue for augmenting consumer discretionary sector weightings, <i>via</i> the movies & entertainment group.

Economic disappointment will become the key theme in the second half of the year, driving a return to non-cyclical market leadership and a recovery in the growth vs. value ratio.

Weak employment will push out the timing of rate hikes to something closer to BCA's view of a September increase. It is also supportive of our asset allocation call two weeks ago to overweight Treasuries.

Fed hawkishness reinforces the need for an imminent profit recovery to justify current valuations. Our Indicators do not signal such an outcome. Stay defensive, and return to an underweight stance in the industrials sector.

Stocks whipsawed violently last week. Volatility could intensify if recent whiffs of a domestic economic slowdown proliferate and the Fed still adopts a more hawkish tone.

The Chinese corporate sector has been reluctant to expand, focusing instead on destocking inventory and hoarding cash. This protects the corporate sector balance sheet, but is not conducive for strong GDP expansion. Q1 earnings reports confirm that an upturn in the Chinese profit cycle is unfolding.

U.S. dollar softness has failed to lift equities of late, a tentative warning that correlations are changing as the U.S. economy cools.

It is widely perceived that China suffers from a massive capital misallocation problem. Our indicators defy this conventional wisdom.