The “buy value” crowded trade is in trouble

Readers will recall that I’ve been tracking the contest between three market narratives for months:

  • Good news is bad news: meaning reopening and ongoing fiscal stimulus has triggered inflation leading to a market shock.
  • Bad is good news: meaning the inflation pop is temporary and ongoing low yields will deliver higher values yet.
  • Good news is good news: meaning reopening and fiscal-led growth will lift inflation a little but lowflation will continue to support markets.

The leading bank for the first case has been BofA and doubts are creeping in:

View:1. combo peak Positioning, Policy, Profits (“3Ps”) & rising Rates, Regulation,Redistribution (“3Rs”) = low/negative stock/credit returns next 3-6 months; 2. optimal H2 barbell = long inflation & long quality; 3.secular AA tilts =real > financial assets, commodities > bonds, RoW stocks > US, small > large cap (Chart3), value > growth.V: 1.9bn vaccines (vs 168mn cases), 50% US adults fully vaccinated…relative to pre-COVID-19…US gasoline demand 100%, dining out 86% (OpenTable), hotel bookings 84%(STR), airplane seats filled 69% (TSA)…BofA reopening portfolio completes V-recovery vslockdown portfolio (Chart2)…H2 we think defensives start to work.

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