Whether one calls it the "Nirvana Scenario" as Bloomberg did, or uses the FT's "‘immaculate disinflation", the latest investment thesis du jour is a familiar one: Wall Street is again betting on a "soft landing" where despite the Fed's ongoing (if almost over) tightening, stocks continue to surge higher on hopes that the Fed will be able to break inflation's back without crashing the labor market and sending the US into an economic tailspin (hard landing).
Yet while the low-volume summer meltup-cum-relentless short squeeze has validated this theory - at least until the sellers return from summer vacation just in time for the end of the student loan interest moratorium - one noteworthy contradiction (from a flows perspective) to “the soft landing is now base case thesis” has been what Goldman's Prime Brokerage observes is aggressive hedge fund "supply" (i.e., selling) in industrials. Which does not compute: because while industrials serve as a convenient bellwether ahead of an economic up-cycle, their wholesale liquidation suggests that the smartest money in the room is not buying the soft landing narrative.
As such, Goldman's John Flood writes that he likes "reengaging industrials on the long side (multis and aerospace) as our PB data show that fast money supply has been consistent in industrials over the last 2 months." Flood is also watching for the Mutual Fund (i.e., Long Onlies) community to start buying higher quality industrials in the same manner that Goldman has recently seen them buying pockets of semis.