Need to Know: Bull, bear, bull, bear and now a new bull market — whatever’s next, these stocks will outperform, strategist says

U.S. stocks are set to move higher still on Monday, after rallying at the end of last week in the wake of a surprising jobs boost. Read More...

U.S. stocks are set to move higher still on Monday, after rallying sharply at the end of last week in the wake of a surprising jobs boost.

The U.S. economy added 2.5 million jobs in May and the unemployment rate fell to 13.3% — economists had predicted the loss of 7.25 million jobs and an unemployment rate of 19%.

The upward momentum of equities continued into Monday ahead of the Federal Reserve’s updated policy statement on Wednesday.

In our call of the day, BTIG strategists led by Julian Emanuel said that while the short-term was unclear, on a 12-month basis the S&P 500 SPX, +0.26% should move to new highs led by cyclical stocks that were beaten in the coronavirus downturn and resurgent off the bottom.

Investors have been “historically whipsawed” in recent years, with 2018’s volatile bull run ending with a non-recession bear market in the fourth quarter and 2019’s “Fed-inspired” bull market running into February’s coronavirus crisis bear market,” the BTIG analysts said.

“The cyclical rip since Mar. 23 has been so conclusive as to say that stocks are in a new bull market,” Emanuel said.

Unprecedented stimulus, optimism over reopening from the coronavirus and “record cash on the sidelines” pointed to further advances, he added. However, pre-election tensions, the misinterpretation of downbeat news for an “economic all-clear,” and the mixed record for stocks when a secular shift from value to growth begins, made the argument for a pause in the upward trend, or even a pullback to the 200-week moving average — 2,681 — the team said in a note.

“That said, whether the S&P 500 continues the bull trend, moves to sideways/pullback mode or even becomes a new bear, on a 12-month forward basis cyclicals beaten in the downturn and resurgent off the bottom should continue to lead,” the team said. While the “winners” during the coronavirus slump were likely to lag.

When it comes to potential outperformers, the strategists screened for stocks down 60% or more between Feb. 19 and Mar. 23 and up 60% or more since Mar. 23 — and stocks in the bottom 20% of S&P 500 return year-to-date with a positive earnings per share forecast to 2020. The list included mass media company ViacomCBS VIAC, +5.35%, clothing company PVH Corp PVH, +4.47%, real estate investment trust Ventas VTR, +2.75% and Darden Restaurants DRI, +2.09%. The team’s underperformers were stocks in the top 20% of S&P 500 return year-to-date, yet which were in the bottom 20% since Mar. 23, and included streaming platform Netflix NFLX, -2.50%, Gilead Sciences GILD, +0.61% and retailer Kroger KR, +0.06%.

The market

After jumping 3.2% on Friday following the surprising jobs report, the Dow Jones Industrial Average D, +0.75% was set to open higher on Monday as futures YM00, +0.94% were 0.7% up early morning. S&P 500 futures ES00, +0.41% also climbed 0.5%, while Nasdaq futures NQ00, -0.42% rose 0.1%. European stocks slipped in early trading as investors focused on the reopening of the global economy — the German DAX DAX, -0.35% fell 0.3% and the French CAC PX1, -0.20% dropped 0.4%. Oil futures were higher early on Monday after the Organization of the Petroleum Exporting Countries and allied nations agreed to extend a production cut of nearly 10 million barrels of oil a day through to the end of July. West Texas Intermediate crude for July delivery CL.1, -2.20% rose 0.7% to $39.85.

The buzz

The Fed will stand up to applaud the surprisingly encouraging May jobs report but won’t make any other move to alter its “low-for-longer” interest rate policy, economists said.

Shares of PG&E Corp. PCG, +2.56% sank more than 8% in premarket trading after the natural gas company announced an equity investment of $3.25 billion at a discount to current prices.

British drugmaker AstraZeneca AZN, -3.41% approached Gilead Sciences GILD, +0.61% last month to gauge its interest in a merger, Bloomberg reported on Sunday. A deal between the two would be the largest ever health-care merger.

Italian bank Intesa Sanpaolo ISP, +3.04% said it has received authorization from the European Central Bank to acquire a controlling majority in Unione di Banche Italiane UBI, +3.63%, creating Italy’s largest bank.

Sen. Mitt Romney joined a group of around 1,000 Christians marching in Washington on Sunday. “We need a voice against racism, we need many voices against racism and brutality. And we need to stand up and say that black lives matter,” he told NBC News.