Good morning. The measure to watch—10-year Treasury yields—is not flashing red at the moment, and that’s good news for stocks. Well, some stocks.

Tesla bulls are in full retreat again in pre-market. As I type, TSLA’s two-day losses put the stock squarely in the red for 2021. And yet it’s not the worst performing asset of the week. That distinction goes to Bitcoin, which has seen a crash in value over the past 30 hours that lands it solidly in bear territory.

Could it be that the fate of $BTC and $TSLA are somehow tied together?, you may be wondering. (If so, you’re not alone.) Causation does not equal correlation, as we say around here a lot, but Elon Musk’s comment that Bitcoin prices “seem high” hasn’t helped investor sentiment any for the crypto currency.

Speaking of sentiment, in today’s essay I dig into the paradox of good news.

Meanwhile, let’s see what else is moving markets.

Markets update

Asia

• The major Asia indexes are mostly higher in afternoon trading, with the Hang Seng up 1%.
• Australia’s Facebook users can begin sharing news within days, the social media behemoth announced, after cutting some kind of agreement with the Australian government. Alas, a similar copyright dispute in Europe is pitting tech giant against tech giant.
• Commodity prices—from oil to corn—are soaring, touching an eight-year high. It’s a sign the global economy is on the road to recovery, but it’s also spooking inflation fears.

Europe

• The European bourses were modestly higher with the Stoxx Europe 600 up 0.2% at the open, before falling.
• ECB chief Christine Lagarde seems spooked about rising yields. In a speech on Monday night, she said the central bank “is closely monitoring the evolution of longer-term nominal bond yields.” Central banks have a lot of firepower. Pushing back against inflation fears will be a huge test of those powers.
• One of yesterday’s big winners was the pound sterling, extending its gains as the best-performing currency of 2021. Its run this year is leading markets watchers to wonder if there’s such a thing as a COVID vaccine rally.

U.S.

• U.S. futures point to another rough open. That’s after tech bulls watched the Nasdaq fall for the fourth time out of the past five trading sessions, closing at a three-week low on Monday as tech heavyweights Apple, Amazon and Tesla took it on the chin.
• Treasury Secretary Janet Yellen thinks Bitcoin is an “extremely inefficient way of conducting transactions” unless, that is, your aim is “illicit finance.” The price of the crypto currency plunged further after she made those remarks.
• Speaking of pullbacks, investors shaved $15.2 billion off Tesla’s market cap yesterday, the biggest sell-off for EV maker since September. Less than a month ago, TSLA was up 25% YTD. Not any more.

Elsewhere

• Gold is flat, trading above $1,800/ounce.
• The dollar is up.
• Crude is climbing with Brent trading above $65/barrel.
• Bitcoin is off its meds. It’s trading around $48,000 at 10 a.m. Rome time, after plunging 22% at one point from its day high. How do you know when Bitcoin is slumping? Answer: Crypto Twitter suddenly goes silent.

***

The paradox of good news

You’re not going to like these data points: The S&P 500 has now fallen in five straight sessions and the VIX “fear” index is at its highest level in nearly three weeks. “As it happens,” Deutsche Bank equity analysts write in today’s invest note, “the last time the S&P saw that many straight moves lower was exactly a year ago during the last week of February 2020, when global markets saw their first major pandemic-led sell-off.”

Of course, last February’s crash was driven by a black-swan hair ball, the COVID pandemic. What’s causing the current wobble? A steady patter of genuinely good news, that’s what. Economists are upgrading GDP forecasts. Retail sales data reveals a surprisingly invigorated consumer. And fiscal stimulus is on the way for hard-hit businesses and households.

Why then aren’t we seeing markets climb on this drip-drip-drip of good news? Because markets have a bit of a sadistic side.

“Market returns are strongest when controversy and uncertainty is high, valuations are attractive and sentiment is bearish. We are far from such conditions today,” Lisa Shalett, Morgan Stanley Wealth Management’s chief investment officer writes.

Surely, you’re thinking, that cannot be correct. Markets are mostly efficient. They climb on good news. Right? Yes, usually. But remember: we’re talking about the R-word. Returns are strongest when we hit bottom, and begin to climb out of that mess.

Shalett goes on to say that most of the good news is already priced in to many equity sectors. “The rosy recovery outlook is broadly reflected in corporate earnings estimates and valuations, which have almost universally hit extremes,” she writes.

Does this mean the great bull rally is over?

Not quite.

“We can easily argue for markets to overshoot given the backdrop of further positive catalysts over the next few months,” she continues, “but our advice is to be selective. Focus on relative valuations and correlations that will enhance portfolio diversification.”

There are laggard sectors, the ones left out of the work-from-home rally of 2020, that are generating decent returns.

“Consider taking profits in high-beta winners and rebalancing portfolios toward relative-value plays in financials, and European and Indian stocks,” she writes. “We also like high-quality, dividend-paying defensives with below-average betas found in the consumer staples, utilities and telecom sectors.”

One other thing she advises: keep your eye on the 10-year Treasury yield.

***

Have a nice day. I’ll see you here tomorrow. But first, there’s more news below.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

Today's reads

Mighty small caps. They've been on full display this year with the Russell 2000 already setting 10 new all-time closing highs, as of Friday's close. And, over that same period, it was up 15% YTD, far outperforming the S&P 500 and Nasdaq, the Wall Street Journal details. The rally in Russell 2000 stocks makes sense. If the economy goes well, so does the Russell 2000, the thinking goes. And a third round of stimulus spending could push up these shares even further.

Where were you? One year ago this week the markets began to wobble, then fell, as it became clearer the coronavirus was going global. Andrew Marquardt in Fortune takes us on a trip back in time to that tumultuous period, which, in hindsight, provides some clear-eyed lessons on how to view the markets today.

"Bears are getting louder." February has been a volatile month for stocks, and that's generating all kinds of predictions the markets are set for a pullback, with the S&P 500 well above its 200-day moving average. How low could the benchmark index fall? Or, is this just a mere blip on the way to further gains? Fortune talks to the pros to find out.

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