The crypto market surges above $2 trillion as investors sour on global stocks

Good morning.

Geopoliticals concerns are in the spotlight after this weekend’s breathtaking collapse of the government in Afghanistan. It’s a shock to watch the Taliban back in power. To say investors are shocked at the turn of events would be an overstatement, but global stocks and U.S. futures have been under pressure all morning.

One area of continued promise is crypto. Bitcoin‘s weekend rally pushed the combined market value of cryptocurrencies above $2 trillion. BTC now trading at a near-three-month high.

In today’s essay, I look at the latest batch of corporate data, and where companies are spending their money. The good news: companies are upping their Capex spend, and that could be a catalyst for certain stock sectors.

Let’s see what else is moving the markets.

Markets update

Asia

• The major Asia indexes are mostly lower in afternoon trading with the Nikkei down nearly 1.6%.
• Japan narrowly avoided a double-dip recession as consumers came out in droves to shop. The not-so-silver lining: that activity may have helped spread COVID.
• The data was not nearly as good in China where economic activity fell in July. The culprit: yes, COVID. That miss is rattling the markets.
• Shares in Saudi Aramco were down 0.9% mid-day after the oil giant made its biggest push yet into renewables, investing in a $900 million 1.5 GW solar project. A bigger deal is the news that Aramco is in advanced talks to buy Reliance Industries’s refinery business in a deal valued at $25 billion.

Europe

• The European bourses are having one of their worst sessions of the month with the Stoxx Europe 600 down 0.5% in early trading. The benchmark closed out Friday in the green, extending its winning streak to 10.
• Real estate and consumer-goods stocks are among the few standouts this morning.
• Shares in BHP were down 1% in London as the mining giant commits to a strategic review of its operations that could see it exit the oil and gas business.

U.S.

• U.S. futures have been in the red throughout the morning. That’s after the Dow and S&P 500 closed Friday in record territory. It was a good week for financials, materials—not so much for tech.
• As of Friday, 91% of S&P 500 firms had reported results. Who’s on the calendar this week? We have Walmart and Home Depot (tomorrow) and Target and Lowe’s (Wednesday) and Deere (Friday).

Elsewhere

• Gold is down, trading below $1,780/ounce.
• The dollar is up slightly as stocks wobble.
• Crude is slumping again with Brent trading below $70/barrel.
• Bitcoin hit a high last seen in mid-May, around the time of the infamous Elon Musk SNL affair. It’s trading above $47,000, up more than 10% in the past week alone.

***

The investment case for re-investing

Even prior to COVID, companies were guilty of splashing out big sums on stock-buybacks while under-investing in the business. The pandemic made things worse as companies slashed their Capex and R&D budgets. This may make some sense in a downturn, but all too often it comes back to bite companies down the road as the lack of investment hits returns in the medium- and long term.

For months, Wall Street has been forecasting a big jump in buybacks as profits take off, so there were a few wary onlookers wondering if the splurge in stocks would come at the expense of re-investing in the people, tech and machinery that could make the company more efficient.

The verdict: turns out those fears were mostly overblown.

According to Goldman Sachs, “business fixed investment surpassed its pre-recession level in 2021 Q2, a much quicker recovery than after other recent downturns… In the near-term, we expect the Capex rebound to continue at a brisk pace.”

There’s a big but that comes after that statement. The spending has been mostly on IT as employers adapt to make work-from-home and hybrid-work settings function as efficiently as before. That trend of spending on IT hardware and software is here to stay, Goldman says. That seems to bode well for the the big names in tech, and those specializing in cloud and cybersecurity services.

Conversely, there’s much less demand for spending on “office structure investment” as office spaces will be under utilized in the near term, the thinking goes. Another laggard is energy. Capex spends on carbon-emitting oil and gas will be lackluster, Goldman forecasts, a far cry from previous recoveries.

All that points to a strong level of re-investment by corporates over the next 18 months. “We expect that Capex will grow at a roughly +7% annualized rate in 21H2,” Goldman writes, “and a +6% rate in 2022, before decelerating to +4% in 2023 and 2024.”

As this bumper Q2 comes to a close, investors are looking for any clues on corporate growth. This surge in R&D and Capex spending is one such promising sign.

***

Postscript

Breaking: It’s hot. 

If we’re lucky, we have just one day left of “Lucifer,” the Saharan “anticyclone” heatwave stifling southern Europe. It’s been creeping up the Italian peninsula for days, reaching us here in Amandola this weekend. 

This is my 22^nd—yikes!—summer in Europe. And it’s another scorcher, right up there with the infamous summer of 2003 when extreme temperatures killed more than 30,000 across the continent. The culprit then was, yep, another killer anticyclone.

In 2003, I was writing for Reuters, in London. I lived in a sweltering apartment at the top of Charlotte Street. I remember sleeping on my linoleum kitchen floor more than once that summer. Desperate for any breeze—a fan, anything—I cold-called hardware stores and office supply shops across the city. Finally, a Ryman’s near Holborn told me I was in luck. We’ve got one left. If you want it, you’d better get here right quick. 

I cabbed it over, and splashed out some insane sum for the thing. I later wrote a story about my days-long hunt for a plain old desk fan. A clever editor headlined it “The last fan standing.” (Like so many of my articles from that era, I can’t find a link to it; grumble, grumble.)

This summer feels notable, too. I cannot recall a summer in which the temps have topped 35°C (95° F) on so many consecutive days. The blazing heat seems to be having an effect on Mother Nature. The New York Times’s Jason Horowitz went last week to the Sicilian town of Floridia—site of the not-yet-official hottest day ever recorded in Europe—where the the lemons, still on the tree, cooked from the inside, and the snails burned to a crisp in their shells.  

Here in Amandola it hasn’t been nearly that extreme. But I’m a bit surprised how brazen (desperate even) the wildlife has become. Every time I water the plants, all manner of birds and pollinators race to the dripping foliage for the blessed moisture. At mid-day, it’s so hot that you can see lizards and scorpions congregate in the shady bit by our front door. On successive days, yesterday morning and the day before, a small snake entered the kitchen through a tear in the screen door. 

It just wanted a bit of relief from the heat, a few moments to lounge on the cool kitchen floor. Hey, I know the feeling buddy.

But snakes—I draw the line somewhere—are not welcome in casa Warner. I clumsily exterminated them both with a broom. The kids were pretty impressed, but I felt terribly about putting them out of their misery.

Over the years, we’ve had the odd snake lurking around the front door, but two in a row slithering into the kitchen feels like some kind of record—unofficial, of course.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.co

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

Today's read

The daunting challenge ahead for Disney CEO Bob Chapek—Fortune

Adidas gives Reebok the boot. Will this go down as one of the worst sportswear acquisitions ever?—Fortune

What are stablecoins? Your guide to the fast-rising alternative to Bitcoin and Ethereum—Fortune

China’s Corporate Crackdown Adds to Junk-Bond Distress—Wall Street Journal

Market candy

Quote of the day

I spent a lot of my crypto buying sushi.

That's Van Phu, a software engineer and co-founder of crypto broker Floating Point Group. In 2014, he was a student at Massachusetts Institute of Technology when a fellow classmate performed a kind of social experiment. He gave each student $100 worth of Bitcoin. (It was trading around $336 per Bitcoin at the time). CNBC details what happened next. Spoiler: Phu wasn't the only one to blow the whole thing on sushi.