Morning Note: The Mark Twain Trade

It’s probably safe to say that reports of the death of the reflation trade have been greatly exaggerated. Of course our longer-term base case firmly supports that notion. The past few days have seen growth (read tech) give way (notably) to the likes of industrials, materials, financials and so on.

Today, however, at least so far, we’re seeing a bit of a reversal of said latest trend. 

Despite slightly higher yields this morning, tech is catching a bit of a bid while the other sectors referenced above are taking it on the chin. 

I suspect this morning’s equity action has something to do with heightened concerns over the delta variant. Overall, tech’s a relative winner when folks are reluctant to stray from their homes.

Here are a couple of snippets from Bespoke Investment Group’s morning note on the topic:

“Case growth is still ramping up across a number of the more successful countries so far this pandemic, and more aggressive non-pharmaceutical interventions are the only plausible response from larger economies. Overnight a terminal at Ningbo port, the third-busiest in the world, was shuttered after a worker developed a COVID infection, illustrating how the disease can further stress the already challenged goods supply chain.”

“US COVID cases have started to rise again and now on a lagging basis, we are starting to see a pick up in hospitalizations and deaths. The more transmissible Delta variant makes up the majority of US cases. We estimate total earned plus vaccinated (1+ dose) immunity to COVID at no less than 75% of the US population, and that estimate is conservative. Vaccination rates have also seen a modest uptick as case counts have risen.”

So, while, again, we’re sympathetic to the notion that the longer-term trade is in the “inflation-linked” market sectors (and regions), JPMorgan’s Marko Kolanovic may be a bit too giddy, just yet:

“In particular we like cyclical and reflation-linked market segments, and are cautious on beneficiaries of lockdowns and low bond yields. In fact, we believe that bond yields and cyclicals bottomed last week and are now on an upward trajectory for the rest of the year.”


Asian equities struggled overnight, with 10 of the 16 markets we track closing lower.

Europe’s leaning green so far this morning, with 11 of the 19 bourses we follow trading higher as I type.

US stocks are mostly lower (although healthcare and tech are bright spots) to start the day: Dow down 96 points (0.27%), SP500 down 0.03%, SP500 Equal Weight down 0.41%, Nasdaq 100 up 0.19%, Nasdaq Comp up 0.11%, Russell 2000 down 0.78%. 

The VIX (SP500 implied volatility) sits at 15.80, down 1.62% this morning.

Oil futures are down 0.12%, gold’s down 0.30%, silver’s down 1.92%, copper futures are down 0.33% and the ag complex is down 0.13%.

The 10-year treasury has reversed higher from the open (yield lower) and the dollar is up 0.08%.

Led by healthcare, tech, Eurozone equities, Verizon and utility stocks — but dragged notably by metals miners, oil services stocks, Viacom/CBS, gold miners and KRBN (carbon credits) — our core portfolio is off 0.46% early in the session.

 

“Reports of my death have been greatly exaggerated.” — Mark Twain


Have a great day!

Marty

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