14 Apr ARE WE WATCHING THE DEATH OF A CROWDED TRADE?
There was little reaction to the nominally higher than expected reading for March’s CPI. Consumer prices climbed the most since 2012. The FRB Chair has emphatically stated such increases are “transitory.”
In my view perhaps one of the most significant sub data set was the greater than expected rise in rents…aka OER or owners equivalent rent. OER is essentially what someone can rent their house for if it was indeed rental. It is around 32% to 33% of inflationary indices. OER is correlated to housing prices and was a major reason why inflation was “well anchored” from 2010-2020ish. OER was essentially flat for a decade.
Home prices are rising considerably in secondary and tertiary cities. A strong argument can be made that if OER continues to rise, the odds of inflationary pressures being “transitory” declines.
Equites took their que from a pause in Johnson & Johnson’s COVID vaccine as the Dow declined while the NASDAQ advanced.
The value versus growth debate is one of the most divisive topics in the global strategist community, especially since the reflation trade that drove a rebound in value shares has faltered recently.
JP Morgan opined yesterday the global markets may have reached an inflection point with value shares set to outperform growth ones for a significant period, perhaps by the same magnitude and duration as growth had outperformed value over the past five to seven years.
Bank America reiterated its view stating that both growth and value returns will be anemic at best for the foreseeable future given the increased probability the Fed may begin to “roll back” stimulus later this year and “near record high valuations.”
I ask is group think ending? If the answer is yes, the markets will become inherently more stable as the odds of a crowded trade destabilizing declines.
Changing topics, yesterday’s 30-year Treasury bond auction was met with “good demand.” According to Bloomberg, however, it was only the thirteenth time since 1990 the “long bond” auction resulted in a negative real yield. The real yield was -28 basis points.
Wow! Talk about believing the Fed is both omniscience and omnipotent!!
With that written however, according to Bloomberg the S & P 500 declined an average 19.4% in each of the twelve proceeding instances. Will history repeat itself?
What will happen today?
Last night the foreign markets were mixed. London was up 0.22%, Paris up 0.39% and Frankfurt down 0.10%. China was up 0.60%, Japan down 0.44% and Hang Seng up 1.42%.
The Dow should open flat ahead of the commencement of first quarter earnings seasons. The 10-year is off 4/32 to yield 1.64%.