Markets
One of China’s Titans is Primed to Rally
Alibaba is one of the largest technology companies in China and its stock has been off nearly 35%…see the full story on our partner Magnifi’s site
(New York)
Inflation worries may have surged this Spring, but that has not helped real yields. When you compare the yields of stocks and bonds versus inflation, the truth is that real yields have turned negative. It is unusual for the S&P 500 to have a negative yield, which is currently at -0.81%. That is slightly better than 10-year Treasuries’ real yield of -0.87%. This has usually spelled trouble historically. Going back to 1970, there has only been one instance when the market did not decline at least 32% in the two years following the point at which yields went negative.
FINSUM: This is a pretty scary statistic, but then again, most historical contexts don’t involve a pandemic-induced country-wide shutdown and unprecedented government stimulus.
(New York)
Gold has been a strong but steady incline for most of 2021, but…see the full story on our partner Magnifi’s site
More...
(Washington)
The muni market has been heating up with a huge influx in cash and stimulus. Additionally, as concerns grow…see the full story on our partner Magnifi’s site
(Beijing)
China saw a rise in both imports and exports that outpaced…see the full story on our partner Magnifi’s site
(New York)
Bank of America put out a very refreshing outlook today, reminding investors of an asset that has traditionally thrived in times of high inflation. And no, it isn’t gold or other commodities. That asset is…small caps. BAML says that small caps, and value stocks as well, have traditionally performed well in high inflation environments, such as in the 1960s. According to the firm, “Our US Regime Indicator has shifted to Mid-Cycle, a phase where inflation is typically strongest. In this phase, small caps and Value have typically outperformed large caps and Growth - further supported by the profits recovery and economic rebound we expect this year. Small caps and Value stocks were also some of the best-performing assets during the inflationary period of the late 60s”.
FINSUM: History aside, we cannot really agree about the idea that small caps will thrive. Relative to large caps, small caps have a higher employment cost base because their employees are more often in the US. Their supply chains are more domestic too. That means all their costs will rise alongside their revenue. Take a larger multinational—Apple for example—most of its manufacturing and supply chain costs are offshore, which means it can enjoy rising inflation-driven revenue, but take advantage of lower inflation rates in its cost base.