Something wicked this way comes?
Investors seem a little rattled as equities close in on fresh all-time highs, with stock futures pointing to a struggle ahead. The S&P 500 SPX, -0.01% finished slightly weaker, but 1.6% away from a July 26 record close on Monday. Moving even further from record territory was the Nasdaq COMP, -0.19% , though an Apple event coming later could re-energize the tech sector.
Of course when it comes to new highs, it’s worth considering they beget newer highs rather than trigger a selloff. That brings us to our call of the day, from Andrew Sheets, chief cross-asset strategist at Morgan Stanley, who says the global economy may be poised for an upside surprise and investors aren’t ready for it.
In a note to clients that published over the weekend, Sheets explores the possibility that his bank’s “below-consensus” view on global growth could be wrong, and better days may be ahead if trade tensions thaw further, China offers more stimulus and global manufacturing woes start to bottom out.
“In this scenario, yields and inflation expectations would rise meaningfully, as markets assume less easing is needed and better days lie ahead,” he said. As a result, the yield curve would steepen, reflecting expectations for rising inflation and stronger growth. As well, financial stocks would rally, and smaller stocks and those linked to the economic cycle would gain on hopes the global growth engine is stirring to life.
But Sheets says few investors are even positioned for an early cycle recovery.
Sheets says his bank is cautious on global equities and credit. But he describes last week’s stock rally as a “shot across the bow,” adding that “if we’re wrong and growth is set to reaccelerate, the market isn’t positioned for it. The moves could be large.”
The chart
Our chart of the day comes from Jeroen Blokland, Robeco portfolio manager, who shared this chart via Twitter. It shows how value stocks — usually bargain priced and unpopular — have performed versus growth stocks since about 1975.
“As you can see for a long period value outperformed, but now growth is outperforming for almost 15 years. Very long cycles which could make it hard for investors to continue to harvest the value premium,” he tells MarketWatch.
The market
Dow YM00, -0.07% , S&P ES00, -0.16% and Nasdaq NQ00, -0.29% futures are lower. Gold GCZ19, -0.82% is also down.
Oil CLV19, +0.85% is up and headed for a five-session win streak, while the dollar DXY, +0.15% is up, mostly against the pound GBPUSD, +0.0810% as a Brexit crisis bubbles over.
Europe stocks SXXP, -0.21% are lower, while Asia markets ADOW, +0.34% finished mixed, with some focus on weak China producer prices.
Read: China removes another hurdle for foreign investor
The buzz
Ford F, +2.14% shares are down 3% in premarket after ratings service Moody’s cut the automaker’s debt rating to junk.
More bad news for property-management company WeWork after a report its biggest investor, Japan’s SoftBank 9984, +1.77%, wants those rocky IPO plans shelved.
China tech giant Huawei Technologies has dropped one lawsuit against the U.S. government after it returned seized equipment.
Interview: Canopy Growth’s CEO on the pot company’s shakeup and search for a leader
The economy
Small-business optimism fell to a five-month low in August. Job openings and household income data is due later. Check out a preview of data due later this week — retail sales and consumer prices.
The stat
Apple AAPL, +0.43% event day could bring us news on new iPhones and a new Apple Watch. What could that do for shares? Apple is up about 6.6% from a month ago, with an average gain of 4.6% over 13 iPhone events (including Tuesday’s), according to Dow Jones Market Data. A month later, shares lose an average 0.7%.
Read: 6 best iPhone accessories you probably don’t own — but should
The quote
“I don’t want to allow people that weren’t supposed to be in the Bahamas to come into the United States, including some very bad people and some very bad gang members, and some very, very bad drug dealers.” — That was President Trump on why the U.S. needs to be careful letting Hurricane Dorian survivors from the Bahamas into the country.
Random reads
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Microplastic pollution is now showing up in global stool samples.
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