CoreMacro

Forecast is diverging from strategy for equities. Intermediate-term positives allow for a blowoff to the upside. But we do not expect the rally to have staying power over a 6-12 month horizon.

The blowout June nonfarm payrolls report reflects a tightening labor market, consistent with stronger ISM manufacturing and non-manufacturing readings. This will take time to impact Fed policy.

Equity and Treasury market positioning support the notion of a bounce in risk assets, possibly egged on by dollar weakness.

The Fed has reason to delay the next rate hike until at least September, even if volatility subsides after the June 23 Brexit vote.

Risk assets will take their cues more from the dollar than the Fed if the euro rises above its 16-month range against the dollar. Retain exposure to energy equities and gold.

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.

Both hawks and doves at the Federal Reserve, including Chair Yellen, have stepped up efforts to condition financial markets for a rate hike as early as June.

Tougher Fed talk warns that the Goldilocks combination of higher stock and bond prices in place since February is not sustainable.

The next rate hike is unlikely before September, despite the rebound in April retail sales. The dollar could suffer for a time, but the long-term bull market is intact.

We continue to view the rally in equities and high-yield corporate bonds since February as a high-risk affair.