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Good morning.
We’re all experts on inflation. We all know things are nutty expensive. (Well, my kids have no idea this is the case.) Still, we need the monthly Consumer Price Index data to put it into some kind of perspective. It comes out today at 8:30 a.m. ET.
Investors, meanwhile, are sitting things out until the inflation reading comes in.
U.S. futures have been up and down all morning. Europe, too, is trading sideways. Crypto, which some believe is a great hedge on inflation, is sleeping one off this morning. Bitcoin is more or less unchanged in the past week.
In today’s essay, I look at the tech rally we saw over the past five months. Morgan Stanley, among others, says we’re unlikely to see a repeat. I explain why below.
But first, let’s see what’s moving the markets today.
Markets update
Asia
- Asia is mixed with the Nikkei up 0.7% in afternoon trading. Chinese stocks, though, are taking it on the chin.
- It’s not just fintechs, video game makers and ride-hailing firms. Beijing believes consolidation of the country’s fragmented electric vehicle sector is the way forward. That sent the share prices of Chinese EV companies tumbling on Monday; they’re volatile again today.
- Investors are bracing for a big data dump tomorrow on the health of the Chinese economy. Economists say it doesn’t look all that good.
Europe
- The European bourses edged lower at the open, with the Stoxx Europe 600 down 0.2% in the first half-hour of trading. At the start, auto and tech stocks were the lone sectors in the green, and only barely.
- European gas futures are surging once again today to record highs as the region’s energy market looks ill-prepared for Old Man Winter.
U.S.
- U.S. futures are higher, but not by much. The Dow[hotlink] and S&P 500 snapped their <strong>five-day losing streaks</strong> on Monday; the [hotlink]Nasdaq fell for a fourth-straight day.
- The Consumer Price Index data comes out before the opening bell, which should tell us whether things are really truly that expensive—or, that you’re just going crazy. Spoiler: both statements are probably true. Economists forecast the headline August CPI number hit +5.3%.
- Intuit will buy privately held Mailchimp, the email marketing outfit that seems to sponsor just about every podcast program on the planet, for $12 billion in cash and stock. Intuit shares fell nearly 1.8% on Monday, underperforming the Nasdaq.
Elsewhere
- Gold is flat. Again. It trades below $1,800/ounce.
- The dollar is down slightly.
- Brent crossed the $74/barrel line overnight, a six-week high.
- The crypto market is a bit calmer this morning, with Bitcoin trading around $45,000. Bitcoin sank yesterday by nearly $2K following the revelation that no, Walmart, isn’t accepting Litecoin for payment.
***
Is that it for the great 2021 tech rally?
Monday’s stock performance, in which value (mainly energy and financials) outperformed growth (i.e., tech), may be a sign of things to come.
That’s one of the big takeaways from an investor note put out on Monday by Lisa Shalett of Morgan Stanley. She and her team argue that the mid-summer resurgence in tech stocks doesn’t seem sustainable. That run came as investors adopted a defensive strategy, pouring into tech as Delta cases soared. At the same time, investors had to contend with “supply chain disruptions, weather-related disasters and the Chinese regulatory crackdown.”
“The disappointing August jobs report punctuated the impact of these factors,” they continue, “which have combined to reduce forecasts for third quarter GDP growth.”
Morgan Stanley believes these GDP-sapping factors are transitory, however—and it is not alone. The bullish-on-the-economy crowd points to long-duration bond yields—think the yield on the 10-year Treasury—as reason to keep the faith in value stocks. Historically, when yields rise (I know; that’s been a somewhat rare occurrence for the better part of a decade), momentum/growth stocks—i.e., tech stocks—falter while value climbs.
Over the past five months, the opposite has occurred.
Since April, Morgan Stanley points out, growth stocks have outperformed value by a near four-fold rate. (The former is up 20.9% while the latter is up 5.9% in that period.) At the same time, the 10-year Treasury fell roughly 60 basis points.
In other words, the correlation closely follows what we’ve seen over the past two decades. Shalett and her team shared this chart to illustrate their point:
Shalett advises recalibrating your portfolios to take advantage of macroeconomic factors improving by year-end.
“Consider taking profits in index funds and tech-heavy exposures while adding cyclicals with an eye toward quality, growth at a reasonable price and international stocks, especially in Japan and Europe,” she writes. “Financials are our top global sector pick.”
Of course, Wall Street was saying much the same thing a year ago. You no doubt remember the great rotation trade discussion. That one played out as scripted… until the Delta variant came to town.
***
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
How Africa’s newest President plans to dig a copper powerhouse out of a mountain of debt—Fortune
What to expect from Apple’s ‘California Streaming’ event on Tuesday—Fortune
Democrats float largest tax increase in decades to fund Biden’s $3.5 trillion budget—Fortune
House Democrats’ Plan to Tax the Rich Leaves Vast Fortunes Unscathed—New York Times
Energy Prices in Europe Hit Records After Wind Stops Blowing—Wall Street Journal
Market candy
14%
At the table this morning, I happened to blurt out—in Italian—who the heck is this Chiara Ferragni? I was momentarily baffled at the news that Ferragni sent shares in Safilo🚀 on Monday after she signed an influencer deal with the Italian eyewear maker. My kids shot me a look of pure disappointment. She's an influencer, dad, they informed me. And she's "cool." Your correspondent, clearly, is not. You know what else is cool? Safilo's shares are up more than 200% in the past year.
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