U.S. stocks are set to open higher after the Dow Jones Industrial Average DJIA,
It comes as the yield on the U.S. 10-year Treasury TMUBMUSD10Y,
In our call of the day, JPMorgan strategists said the rise in bond yields wasn’t over yet and that it was premature to start selling cyclical stocks and buying back defensive equities, such as healthcare and technology stocks.
The investment bank’s strategists, led by Mislav Matejka, said valuations of cyclical stocks — those that stand to gain as economic activity picks up — were beginning to look “toppy” after their strong run over the past year.
European cyclicals, for example, have outperformed defensive stocks by 57% over the past 11 months — ranking near the top when it comes to past recoveries. As a result they said the bulk of the cyclicals/defensives move “might be behind us,” given the size of the cyclicals run and their stretched valuations.
But the strategists warned it was still “premature” to position for a reversal. “For that, one needs to see peaking PMIs, weakening relative earnings and an end to rising bond yields,” they noted.
Those three crucial things are unlikely to happen just yet, they said, with earnings momentum for cyclicals set to “continue accelerating over the next few quarters.” As for purchasing managers indexes, the desynchronized nature of the global cycle — with China potentially peaking, the U.S. approaching highs and Europe looking to pick up over the summer — means a peak isn’t imminent, they said.
The key factor for cyclicals remains the direction of bond yields and, importantly, JPMorgan strategists said the upmove in yields wasn’t finished yet. “Yes, in the short term policy makers will keep pushing back, but [they] are likely to accept higher yields down the line, as the economy strengthens.”
“As long as yields are moving up, cyclicals should not be sold,” they added.
Value stocks, on the other hand, continue to look very appealing, JPMorgan said, as it focused its long positions on banks and the reopening trade.
The chart
Deutsche Bank DB,
Source: Bloomberg Finance LP, Haver, Deutsche Bank Asset Allocation
The Tweet
The value of short bets against shares of special purpose acquisition companies (SPACs) has tripled since the start of the year, according to data from S3 Partners published by the Wall Street Journal.
The markets
U.S. stock futures YM00,
The buzz
Bitcoin BTCUSD,
Elon Musk has officially changed his title to “Technoking”, according to a Tesla TSLA,
Mexican President Andrés Manuel López Obrador criticized the U.S. government on Sunday, saying the U.S. hasn’t helped Mexico with COVID-19 vaccines.
Danone BN,
Swiss pharmaceutical company Roche Holding ROG,
Digital-payments company Stripe said on Sunday it has closed a $600 million funding round that values it at $95 billion — more than double its valuation a year ago.
Beyoncé and Taylor Swift made history at the Grammys, where the top awards were won by female musicians.
Random read
Father and son discover World War I tunnel of death hidden in France for a century.
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