LARRY KUDLOW: Forget the lefty rabble babble, the Trumpian economy is booming

The article argues the economy remains resilient, citing Atlanta Fed GDPNow at 3.7% Q2 growth, private payroll gains of 123,000 in the latest month, and unemployment at 4.3%. It also highlights 2.9% annual nonfarm productivity growth, only 1.2% unit labor cost growth, and stronger profit conditions, while acknowledging the Iran-related energy shock and higher gasoline prices. Overall, the piece is broadly bullish on growth, labor markets, and corporate profits, with geopolitical energy risks framed as temporary.

Analysis

The market implication is not simply “growth is strong,” but that the composition of growth is becoming more capital-friendly: wage pressure is concentrated in lower-productivity labor while aggregate labor costs remain contained, which supports margins even if top-line demand softens. That mix typically favors sectors with operating leverage and pricing power over pure labor-intensive businesses, and it argues against the usual late-cycle playbook of shorting equities on a labor-market slowdown. The bigger second-order effect is that a firm services backdrop plus low unit labor cost growth reduces the odds of a near-term earnings recession, which should keep buyback demand and passive flows supportive into the next quarter.

The main vulnerability is that the market may be underpricing how quickly the energy shock can become a tax on discretionary consumption if it persists for more than one reporting cycle. For now, the inflation impulse looks manageable because the demand-side labor picture offsets it, but a sustained move in fuel costs would hit low-end consumer cohorts first and then flow into transport, packaging, and freight-sensitive names with a 1-2 quarter lag. That creates a window where headline macro can remain bullish while breadth quietly narrows underneath, especially if investors chase cyclicals and ignore second-order margin compression in consumer and industrial end markets.

The contrarian angle is that the “no recession” trade may already be too crowded, while the real opportunity is in relative winners from stable nominal growth, not outright beta. If productivity really is holding up, that is structurally bearish for inflation hedges and bullish for quality growth, software, and select industrial automation names because they can expand earnings without needing multiple expansion. The risk to this view is policy reversal or a sharper energy spike that forces markets to reprice longer-duration cash flows; absent that, this looks more like a regime of positive earnings revisions than a short-squeeze setup.

Key Decisions for Investors

• Go long QQQ vs. short XLU for the next 4-8 weeks: stable growth plus contained wage inflation should favor duration and earnings compounding over bond-proxy defensives; target 3:1 upside/downside if rates stay rangebound.
• Initiate a long XLK / short XLP pair trade: improving productivity and margin resilience should benefit software and platform names while household budget pressure from energy acts as a drag on staples volumes over the next 1-2 quarters.
• Add to industrial automation exposure via ROK or AI-style industrial tech proxies on pullbacks over the next month; if unit labor costs stay benign, these names can outperform on both margin and capex substitution, with asymmetric upside into earnings revisions.
• Short consumer transportation sensitivity with a basket like UBER/LUV or via calls on XLY downside if fuel prices stay elevated for 30+ days; this is a lagged trade with catalyst risk tied to next month’s consumer spending prints.
• Avoid shorting broad equities outright; instead, hedge with energy-aware inflation protection only if crude remains bid for another 2-3 weeks, since the current setup still supports positive EPS revisions and buyback persistence.