By Barbara Kollmeyer, MarketWatch
Something wicked this way comes?
Investors seem a little rattled as equities close in on fresh all-time highs, with stock futures pointing to a struggle ahead. The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.39% finished slightly weaker, but 1.6% away from a July 26 record close on Monday. Moving even further from record territory was the Nasdaq /zigman2/quotes/210598365/realtime COMP -0.83% , though an Apple event coming later could re-energize the tech sector.
Of course when it comes to new highs, it’s worth considering they beget newer highs rather than trigger a selloff. That brings us to our call of the day , from Andrew Sheets, chief cross-asset strategist at Morgan Stanley, who says the global economy may be poised for an upside surprise and investors aren’t ready for it.
In a note to clients that published over the weekend, Sheets explores the possibility that his bank’s “below-consensus” view on global growth could be wrong, and better days may be ahead if trade tensions thaw further, China offers more stimulus and global manufacturing woes start to bottom out.
“In this scenario, yields and inflation expectations would rise meaningfully, as markets assume less easing is needed and better days lie ahead,” he said. As a result, the yield curve would steepen, reflecting expectations for rising inflation and stronger growth. As well, financial stocks would rally, and smaller stocks and those linked to the economic cycle would gain on hopes the global growth engine is stirring to life.
But Sheets says few investors are even positioned for an early cycle recovery.
Sheets says his bank is cautious on global equities and credit. But he describes last week’s stock rally as a “shot across the bow,” adding that “if we’re wrong and growth is set to reaccelerate, the market isn’t positioned for it. The moves could be large.”
Our chart of the day comes from Jeroen Blokland, Robeco portfolio manager, who shared this chart via Twitter. It shows how value stocks — usually bargain priced and unpopular — have performed versus growth stocks since about 1975.
“As you can see for a long period value outperformed, but now growth is outperforming for almost 15 years. Very long cycles which could make it hard for investors to continue to harvest the value premium,” he tells MarketWatch.
The Dow /zigman2/quotes/210598065/realtime DJIA -0.95% , S&P /zigman2/quotes/210599714/realtime SPX -0.39% and Nasdaq /zigman2/quotes/210598365/realtime COMP -0.83% are lowr as trading kicks off. Gold /zigman2/quotes/210039486/delayed GCZ19 +0.04% is also down.
Oil is up and headed for a five-session win streak, while the dollar /zigman2/quotes/210598269/delayed DXY +0.05% is up, mostly against the pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.4316% as a Brexit crisis bubbles over.
Europe stocks /zigman2/quotes/210599654/delayed XX:SXXP -0.32% are lower, while Asia markets /zigman2/quotes/211618636/realtime XX:ADOW +0.08% finished mixed, with some focus on weak China producer prices.