Stock Market News: Dow, S&P 500 Open Down

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The biggest debate in the stock market boils down whether the Federal Reserve can pull off the so-called “soft landing” where the central bank tames inflation without plunging the U.S. into a recession. But what happens if there’s no landing at all?

Last week’s scorching-hot May employment report put to rest recent worries about chips in the economy. But it also pushed back expectations for interest rate cuts. BofA Global Research strategist Ohsung Kwon wrote on Monday that the hot nonfarm payrolls has brought back the debate about a “no-landing” scenario. But he doesn’t think that’s bearish for stocks. In fact, he thinks stronger growth is good for the market as long as inflation remains in check.

“If macro starts to improve, equities should be able to withstand higher levels of inflation,” Kwon writes. “If NFP was just a head-fake and macro slows, inflation would have to come down to support stocks, and it likely will. If CPI cools despite hot NFP, it’s risk on.”

He says weak nonfarm payrolls and a hot consumer price index would have been a worst-case scenario.

“And despite some concerns, recent macro weakness suggests that growth is simply ‘normalizing,’” he writes.

Kwon also expects a strong second-half acceleration in corporate earnings. If that plays out, stocks could still find some upside ahead.