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Good morning.
U.S. futures are modestly higher this morning as global stocks sag, and bitcoin bombs lower. If you venture onto Twitter this morning, you will see plenty of chatter about #DogeDay—yep a full day honoring that dog-faced crypto coin, Dogecoin. Where is this all going? To the moon, apparently, the pump-it-up crowd declares. It’s topped $50 billion in market cap.
In other interstellar news… NASA’s Ingenuity Mars Helicopter made aviation history yesterday when it became the first aircraft to patrol the surface of the red planet, searching for signs of life. Who wants to bet there’s a SPAC promoter or two up there looking for investors?
Back down on Earth, Morgan Stanley, for one, is bullish on value stocks again. I explain what that means for your portfolio in today’s essay.
But first, let’s see what’s moving markets.
Markets update
Asia
- The major Asia indexes are mixed in afternoon trading with Japan’s Nikkei off nearly 2%, the biggest fall in a month as further COVID restrictions loom.
- Japan’s former finance minister, Jun Azumi, thinks the country should call off the Summer Olympics.
- No “bossing others around,” Chinese President Xi Jinpingwarned the U.S. and its allies on Tuesday at the much watched Boat Forum. In the same speech, he called for greater global economic integration.
Europe
- The European bourses were mostly lower out of the gates, with the Stoxx Europe 600 down 0.2% at the open. Autos is one of the few sectors in the green this morning.
- Europe’s other public health crisis—the raging African swine fever outbreak—is steadily worsening, imperiling pork exports… and yet all anyone wants to talk about is the footy furor.
- Here’s the latest on the breakaway soccer super league drama: UEFA, the pro soccer governing body, is in talks with Centricus Asset Management on a €6 billion ($7.2 billion) financing package to revamp the Champions League tournament.
U.S.
- U.S. futures are in the green—barely—this morning. That’s after the major averages fell on Monday, pulled lower by tech stocks.
- Tesla was one of Monday’s big losers, falling 3.4%. Investors are a bit unnerved by the fall in bitcoin prices in recent days. You’ll recall that the crypto currency makes up a portion of Tesla’s balance sheet.
- Brace yourselves, dear readers. It’s Doge Day, a blatant attempt by Doge hounds to pump up the alt coin. It’s up 25% in the past day, one of the few crypto currencies in the green at the moment.
Elsewhere
- Gold is down, trading below $1,770/ounce.
- The dollar is down.
- Crude is up a touch with Brent trading above $66/barrel.
- Bitcoin continues to fall, off 6% this morning to trade around $54,000.
***
Reflation nation
Throughout February and March, the kryptonite in the markets was the twin fears of rising real rates and inflation expectations—the so-called “reflation trade.” You may recall that it was bad news for growth and momentum stocks, and the Nasdaq really took it on the chin for a while.
Since then, things have gone remarkably quiet. We’ve barely heard mention of the R-word as, over the past month, the much-watched yield on 10-year Treasuries has fallen by 10 basis points. It sits at 1.62% as I type.
Does this mean the reflation trade is a thing of the past?
Not so fast, says Lisa Shalett, CIO at Morgan Stanley Wealth Management.
“Rather than marking an end to the reflationary trade that has dominated since last summer,” she writes in an investor note this week, “we see the recent reversal in interest rates and inflation expectations as a technical adjustment. This is a pause that is both typical of market transitions to mid-cycle dynamics, and one that provides investors with opportunities to rebalance portfolio factor exposures after overbought/oversold conditions.”
Shalett sees interest rates and inflation expectations climbing again, and that will cause the reflationary trade to rebound, and with it, lift cyclical and value stocks. The reason: we’re at the start of a big growth cycle, she says.
“We believe that growth this cycle will be faster and broader, fueled in large part by fiscal stimulus, healthy capital spending, improving demographics and a resumption of credit growth,” she writes.
“Consider,” she continues, “retooling portfolios away from long-duration, interest-rate sensitive and inflation-sensitive sectors in both stocks and bonds. Instead, tilt toward pro-cyclical, non-US, short duration, value and quality factors.”
The return of reflation is a theme we’ll continue to watch here.
***
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
From Ponzi to Madoff to crypto. If you're not fully familiar with the story of Carlo Ponzi, the fraudster who preyed on gullible investors in the 1920s and '30s, check out this piece from Eric J. Lyman in Fortune. Ponzi's legacy lives on—and not just with deceased Wall Street schemer Bernie Madoff, but also via a new generation of crypto scammers.
SPAC king. Former Facebooker and so-called king of the SPACs, Chamath Palihapitiya, has become the face of the great unraveling of these blank-check new issues. He raised billions for a series of SPACs which he regularly promotes on his social media channel. How are they doing? According to Bloomberg, "Palihapitiya’s SPACs... have been among the worst bets."
Sell in May, and go away? Had you followed that advice a year ago, you'd be kicking yourself. But what about this year? Is the much-discussed historical May-Halloween swoon something to factor into your investing strategy? Fortune's Anne Sraders has the scoop.
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Market candy
Quiz time
April, so far, has been a good month for equities. Global stocks have hit a series of all-time highs. Which of these slices of the market is Q2's best performer?
- A. Banks
- B. Energy
- C. Healthcare
- D. Technology
The answer is D, tech. Even after yesterday's sell-off, the S&P 500 Technology index is up 7% so far in Q2. The S&P 500 Energy index, last quarter's darling, is down so far this month.
