Here's your investing setup for the week ahead

Published Fri, Jul 8 20163:43 PM EDTUpdated Mon, Jul 11 20165:19 AM EDT

Short Hills Capital Partners

The themes in place for the last few weeks continued into the shortened July Fourth week as the debate over the true impact of Brexit played out in the markets both here and abroad, hope rising and waning over potential remedial monetary and fiscal policy activity yet to come from the ECB and the U.K. The FTSE 100, a concentrated index of British multinationals that benefit from the weakened sterling, rallied to pre-Brexit highs while the broader FTSE indices reflected a much more somber outlook as did the other European markets. The FOMC minutes were released on Wednesday and while the U.K. referendum played a role in the Fed's decision to delay any tightening measures, May's disappointing payrolls report (38,000 new jobs) and concerns about a slowing U.S. economy kept the committee on hold and the markets in a narrow range pending Friday's payroll report for June. Then bang! 8:30 a.m. arrived and the nonfarm payrolls release showed the biggest snap back ever recorded with 287,000 new jobs, blowing past consensus of 180,000. Revisions lifted April's number while dropping May to 11,000. Put in perspective, May's revised number was so weak that it is surpassed by the average attendance of an NHL or NBA regular season game. But it was the fear trade that caught everyone's attention as gold reached higher and U.S. Treasury yields hit record lows with the 10-year hitting 1.367 percent and the 30-year at 2.098 percent. Crude, its minute-to-minute price no longer front-page news, experienced a drop of more than 7 percent as inventories reflected higher-than-anticipated levels. Observations With the jobs report as impetus, as of mid-session Friday, U.S. indices reflected a much more optimistic scenario as domestic markets surged past the Brexit-induced damage, lifting EU indices as well. Undoubtedly there was short covering, but with so much cash on the sidelines, we saw real buying as well. Most interesting of all, perhaps, is that the U.S. 10-year, its yield rising immediately after the jobs report as traders likely envisioned renewed Fed enthusiasm for the economy, reverted to unchanged on the day, the details of the release revealing weakness in segments of the economy. The rub on payrolls has been that the unemployment number is not accurately reflective of reality since so many people have dropped out of the workforce. This view found support in the unemployment rate ticking up to 4.9 percent from 4.7 percent as the workforce expanded in June while wage growth remained muted. And let's be fair about the "fear" trade driving yields lower. It is partly driven by concern, how else to explain the rise in gold prices, but well-abetted by a need for yield as a third of all sovereigns trade with a negative rate; in fact, Japan achieved a record of its own when the 20-year JGB traded to a negative yield. Seriously, who's buying that paper aside from the Japanese government or someone living in a bunker wearing a tinfoil hat to repel the radiation? Or maybe, it's those hearing the footsteps of the 2008 credit crisis with the gating of seven U.K. real estate funds unable to meet the redemption requests of investors watching British real estate values sink faster than the pound or a European bank stock. Meanwhile, China's issues remain real, overshadowed not in potential impact but rather through newsworthiness as it temporarily ceded the spotlight to Brexit, taking the opportunity to somewhat stealthily continue devaluing the yuan at a significant annual rate of 12 percent. Outlook For sure, the overall economic environment has worsened as the S & P 500 has held its level, just below all-time highs, for the past 18 months. Perhaps rightly so, any further assessment of damage to Europe from Brexit has been put on hold pending greater clarity and the beginning of negotiations on separation. The issues with their banking sector, particularly in Italy, remains a significant risk although the BOE and ECB have pledged to maintain liquidity in the system. However, until remedial steps are taken, investor confidence remains at bay. In the U.S., we have to get through what may finally be an earnings season that has not, in advance, reflected the weakening of profit margins and the challenge, in this case, of a stronger dollar and weaker global economy albeit somewhat offset by better-than-expected recent domestic data. Perhaps most important is that investors seem to be hoarding cash as redemptions from both hedge funds and long-only equity managers continue at high levels owing to consensus public market return targets in the low to mid-single digits, a potential return not worth adding risk. But where else can money be made except equities which are not overvalued? Certainly, although the 10-year can trade to a 1 percent yield, it would be unwise to bet large on such an outcome. So my guess is that once we get through earnings season and a better grip on the election, including running mates, equities will be the investment of choice, although likely from lower levels. Selectively, we also like Europe as the index yields in excess of 4 percent and our managers have been positioning high free cash flow generators that will be unaffected by any slowdown. They should be copying the playbook we used in the U.S. at a similar stage in our recovery: dividends, FCF and health care. In sum, while I am cautious and would not be surprised to see a meaningful sell-off in global equity markets, the fear trade and quest for yield that has driven bonds to overvaluation will eventually position equities as an attractive substitute pending evidence that the economy is stable. And while Europe provides opportunity, the U.S. remains the default market of choice. (Mr. Weiss is the managing partner of Short Hills Capital Partners, a hedge fund advisory firm and asset manager primarily established to invest on behalf of one of the industry's most successful hedge fund managers. He has held senior management positions at SAC Capital, Salomon Brothers, Lehman Brothers and MSW Asset Management. He is the author of two investment books and a novel, is a visiting teaching fellow at UNC's graduate business school, Kenan-Flagler, and a CNBC contributor appearing regularly on "The Halftime Report.")

Stephen Weiss

Scott Mlyn | CNBC

The FOMC minutes were released on Wednesday and while the U.K. referendum played a role in the Fed's decision to delay any tightening measures, May's disappointing payrolls report (38,000 new jobs) and concerns about a slowing U.S. economy kept the committee on hold and the markets in a narrow range pending Friday's payroll report for June.

Then bang!

8:30 a.m. arrived and the nonfarm payrolls release showed the biggest snap back ever recorded with 287,000 new jobs, blowing past consensus of 180,000. Revisions lifted April's number while dropping May to 11,000. Put in perspective, May's revised number was so weak that it is surpassed by the average attendance of an NHL or NBA regular season game. But it was the fear trade that caught everyone's attention as gold reached higher and U.S. Treasury yields hit record lows with the 10-year hitting 1.367 percent and the 30-year at 2.098 percent. Crude, its minute-to-minute price no longer front-page news, experienced a drop of more than 7 percent as inventories reflected higher-than-anticipated levels.