Good news still good news for equities

For the last few months, I have been tracking three narratives driving all major markets. The first is good is bad news which has been manfully promoted by BofA:

• The Price is Right: lumber, copper, steel, iron ore, tin, corn,soybeans, at or close to all-time highs.
• Trade of ’21: long copper (+27.9%), short 30-year Treasury (-13.8%); note annualized 10-yr return from commodities positive (0.8%) 1st time since Nov’14 (Chart2); comparewith10-yr return from stocks 14.2%, government bonds 6.4%, corporate bonds 5.5%.
• Top of ’21:NY Clockdown Mar 21st 2020 coincided with SPX 2237 low; July 21st2021 =NYC full reopening…we say long inflation>deflation, long quality>risk.
• The taper barbell:long inflation & long quality; long inflation = long commodities, short bonds & long commodity currencies, small cap, EAFE/EM cyclicals; long quality = long low-bet a utilities, staples, and short“long-duration” equities.
• Long inflation: case for inflation causing jump in inflation expectations (seeTIPSbreakevens–Chart6); asset price inflation now mutating into real estate, commodities; next leg of trade…a. acceleration in wages (AHE YoY >3.5% in coming months), b. newhighs in oil price, c. further breakdown in long duration stocks e.g. XBI <$130, TAN<$80, ARKK <$110, KWEB<$70.
• Inflation laggards: neither commodity currencies (e.g. AUD–Chart7), nor EM assets(bonds & stocks–Chart8) reflect strength of commodities (nbEM equities a new index…was 37% resources in’08 now 13% as tech/consumer has surged from 26% to 51%-Chart9); still we think EAFE/EM cyclical offer inflation hedge for equity investors (nb 1533/3042MSCI ACWI constituents still >20% from all-time highs).

I agree with this to the extent that US inflation is going to rise enough for yields to steepen further over the next year. That is going to sink growth stocks further as the rotation to value continues.