The Reopening And Reflation Theme

The reopening and reflation theme is evident in both the US and in Europe at the moment. There has been a relative movement of 5% in the past five trading sessions for reopening vs stay-at-home stocks. 

Inflation beneficiaries (+8%) are the clear outperformers in the past week, with last quarter winners (+9%, basically vaccine relief) and Cyclicals (+8%), along with Renewables (+5% but now +33% YTD on fiscal spend) outperforming over the past week. (borrowing my SPI Asset Management quants for this read)

In itself, this is not surprising, and arguably healthy—since a broadening out of leadership and an apparent reaction to what we have been talking about and seeing in terms of breakeven expectations in the market.

With bond yields now having some beta moves, Financials started to rally—including in Europe, up 8% on the week. This move is still very unpopular (and under-owned) filled with much scepticism. However, the volume is picking up, which is usually the first sign you should not fight this momentum. 

The only surprise was that the market moved up at the Index level in the past week despite this rotation. Given the weight of the rotation in vs out, I would have expected the need to consolidate or at least sell-off at the Index level. Some of this may have to do with the fact that after the short squeezes seen last week, futures possibly replaced stocks as hedges, and are probably becoming uncomfortable here and buying when opportunities present. 

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