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2021-04-20
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Reflation Trade Remains a Good Bet for Now. Try Banks, Small-Caps, and Cyclicals
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Try Banks, Small-Caps, and Cyclicals","url":"https://stock-news.laohu8.com/highlight/detail?id=1116084515","media":"MarketWatch","summary":"Economic growth forecasts are far from peaking. Is the same true for corporate earnings?The Commerce","content":"<p>Economic growth forecasts are far from peaking. Is the same true for corporate earnings?</p><p>The Commerce Department last Thursday reported that retail sales rose to a record seasonally adjusted $7.4 trillion in March. Ed Yardeni of Yardeni Research points out that such sales are up 50% since bottoming last April while the 12-month moving average for the series is also at a record level.</p><p>Companies across the retail sector are benefiting from the latest round of stimulus checks to households. “Americans have been going on a supermarket sweep thanks to the three rounds of pandemic relief checks,” Yardeni says, estimating that about 250 million Americans have received checks that add up to roughly $800 billion in cash available for sweeping through supermarkets, stores, and shopping malls.</p><p>On the heels of the strong retail sales report, economists have been taking 2021 gross domestic product forecasts higher. The Federal Reserve Bank of Atlanta’s GDPNow model’s first-quarter GDP estimate is now a seasonally adjusted 8.3%, up from 6% before the March retail sales data.</p><p>As Sean Darby, global equities strategist at Jefferies puts it, 2021-22 economic growth will resemble a 100-meter relay race, with the baton passing from China to the U.S. and then the U.K., Japan and Europe sprinting together. In that respect, he says, the S&P 500 will continue to benefit from the theme of global reflation well into the end of the year.</p><p>In addition to extraordinary fiscal and monetary policy and rising Covid-19 vaccination numbers alongside falling daily new cases, Darby points to depleted business stockpiles as rationale for an ongoing acceleration in U.S. economic activity. “U.S. 2021 GDP forecasts are far from peaking,” he says, with low inventories and supply-chain issues holding back some fire—meaning the U.S. recovery is understated given latent demand.</p><p>As such, Darby predicts roughly 30% earnings growth for theS&P 500this year versus last. Some forecasters are even more bullish. AtMorgan Stanley,for example, strategists’ base-case for 2021 S&P 500 earnings is $193 a share versus Darby’s $180.</p><p>But while broad economic growth may continue to boom for a while, Darby suggests the same may not be so true for corporate earnings. In particular, investors should consider two underappreciated risks.</p><p>“The V-shape earnings growth is coming to a summit,” he says. “What does concern us is the possibility of peak margins given the ferocity of input costs and the growing likelihood of changes in the corporate tax rate.”</p><p>On the first point, input costs, the 4.2% year-over-year gain in the March producer-price index was the biggest in 47 years. Survey data reveal a huge mismatch between producers’ inventory levels and incoming orders and backlogs, Morgan Stanley notes, while the latest small-business survey by the National Federation of Independent Businesses shows a record number of firms plan to raise prices.</p><p>That feedback loop onto corporate profit margins, to the extent companies eat higher input prices instead of immediately passing them onto their customers, may undermine first-quarter earnings (the reporting season that is currently underway) as well as second-quarter earnings, Darby says.</p><p>Meanwhile, the Biden administration has proposed raising the corporate tax rate to 28%. That’s down from the 35% before 2017 but above the current 21% rate. In addition, Biden’s plan would lift the minimum tax on foreign profits of U.S. companies to 21% from 10.5%. Those changes and others would add up to $2 trillion in corporate tax increases over 15 years to pay for his infrastructure plan.</p><p>What’s the upshot for investors? Putting all that together, Darby says investors should stick with the so-called reflation trade, or the bet that a quickly improving economy would benefit riskiest assets most, such as small-cap stocks over large-caps. Rising growth and inflation expectations should lead to a steeper yield curve, to the benefit of banks and consumer finance companies. Last, Darby says he remains bullish on cyclical stocks (those most closely tied to economic health, such as retail and restaurants).</p><p>Such stocks, of course, have had good runs so far this year. TheFinancial Select Sector SPDR Fund(ticker: XLF) andConsumer Discretionary Select Sector SPDR Fund(XLY) are each up 20% and 11% year-to-date, respectively, far outpacing the 3% rise inConsumer Staples Select Sector SPDR Fund(XLP). That’s as theRussell 2000is up 13% versus theS&P 500’s10% gain this year.</p><p>In light of expectations for continued economic momentum and given where the downside risks of rising input prices and taxes would most heavily fall, those segments of the stock market seem to remain good bets.</p>","source":"market_watch","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Reflation Trade Remains a Good Bet for Now. Try Banks, Small-Caps, and Cyclicals</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nReflation Trade Remains a Good Bet for Now. Try Banks, Small-Caps, and Cyclicals\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-04-20 11:34 GMT+8 <a href=https://www.marketwatch.com/articles/reflation-trade-remains-a-good-bet-for-now-try-banks-small-caps-and-cyclicals-51618861036?mod=newsviewer_click><strong>MarketWatch</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Economic growth forecasts are far from peaking. Is the same true for corporate earnings?The Commerce Department last Thursday reported that retail sales rose to a record seasonally adjusted $7.4 ...</p>\n\n<a href=\"https://www.marketwatch.com/articles/reflation-trade-remains-a-good-bet-for-now-try-banks-small-caps-and-cyclicals-51618861036?mod=newsviewer_click\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{".DJI":"道琼斯",".IXIC":"NASDAQ Composite",".SPX":"S&P 500 Index","SPY":"标普500ETF"},"source_url":"https://www.marketwatch.com/articles/reflation-trade-remains-a-good-bet-for-now-try-banks-small-caps-and-cyclicals-51618861036?mod=newsviewer_click","is_english":true,"share_image_url":"https://static.laohu8.com/599a65733b8245fcf7868668ef9ad712","article_id":"1116084515","content_text":"Economic growth forecasts are far from peaking. Is the same true for corporate earnings?The Commerce Department last Thursday reported that retail sales rose to a record seasonally adjusted $7.4 trillion in March. Ed Yardeni of Yardeni Research points out that such sales are up 50% since bottoming last April while the 12-month moving average for the series is also at a record level.Companies across the retail sector are benefiting from the latest round of stimulus checks to households. “Americans have been going on a supermarket sweep thanks to the three rounds of pandemic relief checks,” Yardeni says, estimating that about 250 million Americans have received checks that add up to roughly $800 billion in cash available for sweeping through supermarkets, stores, and shopping malls.On the heels of the strong retail sales report, economists have been taking 2021 gross domestic product forecasts higher. The Federal Reserve Bank of Atlanta’s GDPNow model’s first-quarter GDP estimate is now a seasonally adjusted 8.3%, up from 6% before the March retail sales data.As Sean Darby, global equities strategist at Jefferies puts it, 2021-22 economic growth will resemble a 100-meter relay race, with the baton passing from China to the U.S. and then the U.K., Japan and Europe sprinting together. In that respect, he says, the S&P 500 will continue to benefit from the theme of global reflation well into the end of the year.In addition to extraordinary fiscal and monetary policy and rising Covid-19 vaccination numbers alongside falling daily new cases, Darby points to depleted business stockpiles as rationale for an ongoing acceleration in U.S. economic activity. “U.S. 2021 GDP forecasts are far from peaking,” he says, with low inventories and supply-chain issues holding back some fire—meaning the U.S. recovery is understated given latent demand.As such, Darby predicts roughly 30% earnings growth for theS&P 500this year versus last. Some forecasters are even more bullish. AtMorgan Stanley,for example, strategists’ base-case for 2021 S&P 500 earnings is $193 a share versus Darby’s $180.But while broad economic growth may continue to boom for a while, Darby suggests the same may not be so true for corporate earnings. In particular, investors should consider two underappreciated risks.“The V-shape earnings growth is coming to a summit,” he says. “What does concern us is the possibility of peak margins given the ferocity of input costs and the growing likelihood of changes in the corporate tax rate.”On the first point, input costs, the 4.2% year-over-year gain in the March producer-price index was the biggest in 47 years. Survey data reveal a huge mismatch between producers’ inventory levels and incoming orders and backlogs, Morgan Stanley notes, while the latest small-business survey by the National Federation of Independent Businesses shows a record number of firms plan to raise prices.That feedback loop onto corporate profit margins, to the extent companies eat higher input prices instead of immediately passing them onto their customers, may undermine first-quarter earnings (the reporting season that is currently underway) as well as second-quarter earnings, Darby says.Meanwhile, the Biden administration has proposed raising the corporate tax rate to 28%. That’s down from the 35% before 2017 but above the current 21% rate. In addition, Biden’s plan would lift the minimum tax on foreign profits of U.S. companies to 21% from 10.5%. Those changes and others would add up to $2 trillion in corporate tax increases over 15 years to pay for his infrastructure plan.What’s the upshot for investors? Putting all that together, Darby says investors should stick with the so-called reflation trade, or the bet that a quickly improving economy would benefit riskiest assets most, such as small-cap stocks over large-caps. Rising growth and inflation expectations should lead to a steeper yield curve, to the benefit of banks and consumer finance companies. Last, Darby says he remains bullish on cyclical stocks (those most closely tied to economic health, such as retail and restaurants).Such stocks, of course, have had good runs so far this year. TheFinancial Select Sector SPDR Fund(ticker: XLF) andConsumer Discretionary Select Sector SPDR Fund(XLY) are each up 20% and 11% year-to-date, respectively, far outpacing the 3% rise inConsumer Staples Select Sector SPDR Fund(XLP). That’s as theRussell 2000is up 13% versus theS&P 500’s10% gain this year.In light of expectations for continued economic momentum and given where the downside risks of rising input prices and taxes would most heavily fall, those segments of the stock market seem to remain good bets.","news_type":1},"isVote":1,"tweetType":1,"viewCount":50,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":2,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/371089617"}
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