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The summer lull is real for investors right now, as stock catalysts seem few and far between. Thursday’s update on consumer prices may bring the next update, after May data spooked markets last month.
With stocks SPX, +0.14% hovering at record levels amid a stunning recovery from the COVID-19 pandemic recession, investors want to know when and how central banks will begin to respond to signs of rising global inflation. Since not all stocks are built alike for different stages of recovery, many would like to know if they are betting on the right stocks.
They should start watching the most reliable indicator of stock trend since 2008 — the 10-year bond yield TMUBMUSD10Y, 1.534%, according to The Leuthold Group’s chief investment analyst Jim Poulsen, who gave our call to day.
Since the 2008-2009 financial crisis, he said in a note to clients that “the bond market determines, or at least indicates by chance” which stock groups will be winners and losers. This was especially true for many popular topics including cyclical topics, growth investing, small capital, etc.
For example, show through the charts below how defensive sectors, such as utilities and commodities or low-volatility investments, only do well when bond yields are trending lower:
Leuthold Group
So if the 10-year yield, currently hovering at 1.561%, gets another boost at 2%, that group is likely to underperform, he said. He added that if the economy is headed for very high stress and yields are set to rise, history has shown that the most volatile stocks are often the winners.
Paulsen points to the charts below for small-cap stocks, cyclical sectors, and emerging markets that are “often the winners during periods when high returns are causing chaos in the stock market.”
The Leuthold Group
The strategist is among those who are already seeing higher returns.
The recent pause in 10-year bond yields has been baffling despite rising inflation expectations. Moreover, if returns continue to trend sideways or correct part of their recent advance, defensive investments, including growth stocks, will likely be a market leader,” Paulsen wrote.
He expects this yield to go up again, pushing it above 2%, likely by the end of 2021. That means “stock investors should heed the bond market message and drive a few quick ‘cyclical’ stock cars!”
Read: Why are the markets stuck and what is likely to get them moving again
Bitcoin blues, billionaires and taxes
US stock futures ES00, +0.21% NQ00, +0.49% YM00, +0.03% mixed, with European stocks SXXP, flat +0.45%, while Asian markets are lower. Oil CL.1, -0.32%, is down, DXY Dollar, +0.14%, Bitcoin BTCUSD, -0.07% and other cryptocurrencies continue to decline. Some have been noticing the digital asset’s decline since news that US authorities were able to recover most of the bitcoin used to pay a ransomware attack on a major energy pipeline.
ALSO READ: Bitcoin faces new scrutiny as police claim new powers to freeze crypto assets in UK
On the data front, the National Federation of Independent Business’ index fell for the first time this year, as employment problems hit small business owners. The trade deficit narrowed in May and jobs data is still awaiting release.
Major global websites, including Amazon.com, CNN and Bloomberg, were down on Tuesday. Shares of Fastly FSLY, +3.01%, fell briefly after the cloud platform said it had identified a problem and was working to fix it.
A new report says billionaires including Amazon AMZN, CEO Jeff Bezos +1.27% and Tesla CEO Elon Musk have at times evaded federal income taxes.
Shares of TSLA, the electric car maker, +1.95% are moving higher after China’s shipments rebounded in May.
In May 2020, a US government report on the origins of COVID-19 was urging an investigation into the theory that it had leaked from a Wuhan lab.
Destructive carbon dioxide is 50% higher than it was at the dawn of the industrial age, according to the National Oceanic and Atmospheric Administration (NOAA).
random readings
I got my pants tight. Levi’s boss says many of us don’t fit in our clothes, after the pandemic.
Hunting killing wasps. A job that makes you appreciate your work.
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