Friday’s non-farm payrolls report capped off a week of strong economic data. It showed that 943,000 jobs were added in July, way more than economists were expecting.

More importantly, the leisure and hospitality industry led the way. They accounted for 40% of the job gains last month as you can see in the chart below. That includes areas such as restaurants, bars and hotels.

july 2021 jobs one-month net change

This past week also saw the ISM Services PMI report at its highest level ever. Those are terrific signs that the recovery is gaining steam, and that spending is shifting back to important service areas of the economy as people head out.

But is the recovery about to be cut short?

New COVID-19 cases are once again on the rise due to the Delta variant. In fact, the U.S. just saw over 168,000 new cases reported on Friday, the most since January. The seven-day average of new cases has increased fivefold in less than a month.

Mask advisories are returning and many businesses are delaying a return to the office. In fact, Amazon (Nasdaq: AMZN) is extending remote work policies into 2022.

That’s pitting a normalizing economy against another COVID-19 train wreck. And this is creating an epic struggle for leadership in the stock market.

Here are the two sides squaring off against each other.

Reopening or Not

The contrasting dynamic between a strengthening economy and one threatened by a resurgent pandemic is playing out in two key segments of the stock market.

Earlier in the year, beaten-up cyclical stocks jumped in response to effective vaccines and signs that COVID-19 had been beaten back in the U.S. In fact, the energy sector remains 2021’s top performer.

But as we slide back into darker days, expensive high-growth stocks are making a comeback … especially those that benefit from the stay-at-home economy.

Like Zoom (Nasdaq: ZM), which has seen its share price rise by 33% over the past three months, while the energy sector has slumped by 8%.

So which trade will win out as we head into the late summer months?

Here are the key metrics I’m watching to know who will take the lead.

Mobility Data Is Key

We’re not about to see renewed large-scale lockdowns across the U.S.

But if consumers reflect concerns about rising COVID-19 cases by staying at home, that would put a serious dent in recovering service industries.

That’s why mobility data will be key to the next phase in the stock market.

I’m watching metrics like TSA throughput figures on how many people are traveling by plane, and reservations to track restaurant traffic. OpenTable’s restaurant data shows that seated diners are now close to 2019’s levels, as you can see below.

opentable us seated diners graph

These types of stats deliver real time and high frequency data points that will quickly tip off any change in consumer behavior. If it shows people keep going out and spending, expect cyclical areas of the market to do well. If mobility numbers start to reverse, then you will see stay-at-home picks perk up.

So be sure to track mobility data closely. That’s how you will be tipped off early to the next phase of stock market leadership.

It’s also what some of the world’s top quant investors use (among other quant-driven factors) to stay one step ahead. I use those same factors to select the best trading opportunities in my Flashpoint Fortunes options service. Click here to see how I do it.

Best regards,

Clint Lee
Research Analyst, The Bauman Letter