Here’s why three inflation-fueled rotations may still be in their early stages

Stock Market


For those who track financial markets on a daily basis, the story of red-hot inflation driving a rotation between assets may seem like an old story. But it’s still in the early stages, according to David Groman, a London-based strategist at Citi.

The fund flows from bonds to equities, the US to the rest of the world, and growth to value, remain fairly small. And valuations still support further rotation, he says. “Global equities still look cheap against bonds. Rest of World indices look attractive against the US Value is still lowly rated versus Growth, ”Groman said.

He notes that even as investors piled a record $ 913 billion of flows into equities last year, the cumulative $ 750 billion switch into equities since 2007 still looks low, at least compared to $ 4 trillion poured into bond funds. “Bitter experience means that we are wary of calling a multi-decade switch back to equities, but the data do suggest scope for further rotation over the shorter term,” said Groman, who previously was a financial economist at the US Treasury.

As for regional preferences, flows into ex-US funds have outpaced US-inclusive funds for seven of the last eight months as a percentage of assets under management. “Investors do seem to be diversifying outside the US but were already doing so before this year’s underperformance. The shift in flows still seems small compared to the prior preference for the US-inclusive funds, so maybe there is more to come, ”said Groman.

Value funds have seen seven consecutive weeks of inflows, compared to six straight weeks of growth outflows. But the magnitude of those flows are small. Cumulative flows into value funds last year when there was a rotation reached $ 70 billion, compared to this year’s $ 23 billion inflow.

“The flow drivers behind recent market rotations remain relatively modest. As further capital chases the recent winning trades, they could move further. Although [the first quarter 2021] rotation soon fizzled out, we suspect that its [first quarter 2022] counterpart could run further, ”he said.

The buzz

The retail sales report for January is due for release, with economists expecting an improvement in seasonally adjusted terms, while the minutes from the last Federal Open Market Committee meeting will be released in the afternoon. Inflation in the UK reached a 30-year high of 5.5% in January.

Developments between Russia and Ukraine still hang over the market. US President Joe Biden says the US has not verified Russia’s claim about a partial troop withdrawal, and NATO Secretary General Jens Stoltenberg said Russia has actually increased the number of troops, and that more troops are on their way. Ukraine’s defense ministry says it was battling a cyberattack.

ViacomCBS VIAC
slumped as the company, which is changing its name to Paramount Global, reported worse-than-forecast earnings and revenue. Roblox RBLX
fell 15% after reporting a wider-than-forecast loss. Airbnb ABNB
gained on a strong outlook and better-than-forecast fourth-quarter earnings.

Artificial lending platform Upstart UPST
surged 25% after reporting faster revenue growth than expected and announcing a $ 400 million stock buyback plan.

Nvidia NVDA and Cisco CSCO headline the reports after the close.

Digital World Acquisition Corp. DWAC,
the special purpose acquisition vehicle that has agreed to buy Trump Media and Technology, may attract attention after Donald Trump Jr. posted a screenshot of his father’s first post on the Twitter-like social-media platform called Truth Social.

The market

US stock futures ES00

NQ00
slipped, after the 1.6% jump in the S&P 500 SPX
on Tuesday when Russia said it was withdrawing some troops from Ukraine’s border.

The yield on the 10-year Treasury BX: TMUBMUSD10Y
was 2.04%.

Top tickers

Here were the most active stock-market tickers as of 6 am Eastern.

Ticker

Security name

AMC

AMC Entertainment

GME

GameStop

TSLA

Tesla

NVDA

Nvidia

NIO

Nine

SPCE

Virgin Galactic

FB

Meta Platforms

Apple

RBLX

Roblox

UPST

Upstart Holdings

Random reads

With a tiger and a photo of CEO Jamie Dimon, JPMorgan enters the metaverse.

Here’s a piece from the humorist PJ O’Rourke, who died on Tuesday, on the Enron fraud.

This skier cost himself a gold medal by going the wrong way.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 am Eastern.

Want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch writers.



Source link

Leave a Reply

Your email address will not be published.