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Good morning.
U.S. futures are gaining this morning—yes, even tech futures—as investors pour back into Asian and European equities. Commodities again are zooming higher, with copper and crude leading the gains in that corner of the market.
Crypto is rebounding this morning, too, but that’s after Bitcoin and Ethereum both dipped into bear-market territory overnight.
Let’s check in on the rest of the markets action.
Markets update
Asia
- Asia is rebounding with the Nikkei up 2.2% in afternoon trade.
- The macro picture in Tokyo doesn’t look good, however. Japan’s economy shrank more than expected in Q1, hit particularly hard by the chips shortage.
- Stocks in Taiwan are rebounding today despite the country’s recent struggles containing COVID-19 cases. It wasn’t long ago that Taiwan was the envy of the world in keeping the pandemic at bay.
Europe
- It’s a risk-on day in Europe too with the European bourses up out of the gates. The Stoxx Europe 600 gained 0.7% in the opening minutes with every sector but telecoms in the green.
- There are cheers on both sides of the Atlantic after the EU called off tariff hikes that would have hit American whiskey distillers and the likes of Harley-Davidson. Shares in Harley took off yesterday, climbing nearly 9%.
U.S.
- U.S. futures are climbing this morning. That’s after all three major averages started the week in the red, with tech and utilities dragging down stocks.
- Investors aren’t happy with AT&T‘s spin-off of Warner Media, sending the stock down 2.7% on Monday; it’s off another 4.2% in pre-market. Fortune‘s Geoff Colvin calls AT&T’s costly media flirtation “one of the greatest corporate strategy blunders of recent decades.”
- Sticking with M&A talk… Shares in Amazon are up 0.1% in pre-market trading as reports swirl the streaming giant is in talks to buy the Metro-Goldwyn-Mayer, the movie studio behind James Bond films.
Elsewhere
- Gold is up a touch, trading around $1,870/ounce.
- The dollar is falling, approaching a four-month low.
- Crude is higher with Brent pushing $70/barrel.
- Crypto prices are rising, but it’s been a rough week. Bitcoin is trading around $45,000. And at $3,470, Ethereum is roughly 20% off its all-time high, reached last week.
***
Growth vs. Value, revisited
Yesterday we saw another example of what rules in this market: value stocks. Banks and financials outperformed tech yet again to start the week.
Lisa Shalett, Morgan Stanley Wealth Management’s chief investment officer, for one, sees this trend continuing.
In her latest investor note, she points out that in this inflationary environment, value stocks—the ones that are trading at a discount to their earnings and dividend payouts—have an outsized advantage over growth stocks. The latter depends on “lower-for-longer” interest rates while value stocks perform better when yield curves are steepening.
With pressure on bond yields, and fears of rising inflation, investors are going all in on value. In fact, Shalett points out, the performance of value stocks over growth stocks over the past quarter has hit a 40-year extreme:
Within that segment of underperforming growth stocks, you’ll find a particularly vulnerable grouping: unprofitable growth stocks—names like Peloton, Uber, and DoorDash. As a whole, they’re doing particularly poorly in this period of steepening yields.
The bet investors are making is that inflation is here to stay. They’re not buying the “transitory” argument that the Fed’s Jerome Powell and Treasury Secretary Janet Yellen are pitching.
Shalett too isn’t buying it. “We believe higher inflation is not transitory, but structural to this cycle.”
With that in mind, she suggests that investors “consider positioning for higher rates and inflation. Neutralize large style biases and focus on trimming excessively valued positions in favor of quality value stocks and stocks that offer growth at a reasonable price.”
***
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 read
Turbulence in the skies. Budget airline EasyJet entered 2020 as a real high-flyer, with the stock soaring to new heights. The brand was strong, as was the balance sheet. And then, of course, COVID hit. Fortune's Jeremy Kahn goes deep inside the company to deliver a must-read profile on one of the airline sector's most fascinating companies, one that's betting big on a summer rebound—except there's a bit of excess baggage weighing down its turnaround plan. You can read Jeremy's feature here.
Interest bearing. Savings rates are abysmal the world over. That's not the case with crypto savings accounts, which pay up to 6% interest. What's that—and more importantly, what's the catch? Bloomberg BusinessWeek's Brandon Kochkodin explains.
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Market candy
Quiz time
Energy is the top-performing sector in the S&P 500 so far in May. What's No. 2?
- A. Financials
- B. Materials
- C. Consumer Staples
- D. Info Technology
Hint: like energy, its performance is also historically tied to the ups and downs of commodity prices. Yep, it's B, Materials. The Wall Street Journal has a helpful explainer as to why commodities are driving markets gains this quarter—and why that trend is unlikely to change any time soon.
