A new supercycle is emerging for the economy, and these are the stocks that would benefit, says strategist

It’s been an interesting summer for financial markets – more or less, a string of mostly gloomy economic data has led traders to think the Fed will loosen the pedal a bit, although they’ve been less convinced of that view over the past week.

Dario Perkins, general manager for global macro at research firm TS Lombard, takes a longer lens, saying a new macro supercycle is emerging. “The supercycle in inflation and interest rates is ultimately about ‘power’, and the balance of power seems to be shifting,” he writes. And that power is shifting to labor, even as interest rate hikes from the Fed and other central banks send the economy into recession.

The ratio of vacancies to unemployed workers has risen sharply in the developed world, while the labor force has declined.

“A mild recession will not eliminate current staff shortages or return the balance of power to capital. Central banks should not stand in the way of structural shifts such as deglobalization, climate change and ‘war economy’,” said Perkins, who previously worked at the British Treasury and was an economist at ABN Amro.

What does that mean? In the short term, there will be frustration for both bulls and bears, with further swings in both bonds and stocks as the inflation/deflation pendulum swings. But eventually, long-term interest rates will rise and central banks will fight to keep inflation below 3%, not below their 2% target, Perkins says.

“With secularly higher interest rates, investors will no longer be able to rely on the continued revaluation of all other asset classes, especially long-term stocks such as US technology stocks. The 2020s will require a more critical approach to asset allocation,” he says.

The beneficiaries will be companies with tangible assets – the real economy, so to speak. In an economy under high pressure, there’s a scarcity premium on physical assets, uncertainty about future returns and less benefit to financial engineering, he says. In an era of deglobalization, intangible assets will lose their appeal.

“Investors should seek exposure to ‘tangibles’ such as commodities, real estate and many traditional ‘value’ parts of the stock market, which are likely to benefit from this transition,” said Perkins.

Theme

winners

Higher interest rates

Banking, Finance, Healthcare

Infrastructure Expenses

Industry, materials, raw materials

Structural energy shortages

Energy, raw materials

defense spending

Defence, aerospace, materials

Global Housing Revival

Banks, materials, raw materials

Deglobalization and reshoring

Industry, capital goods

Climate change

Raw materials, metals, energy

Source: TS Lombard

the markets

US stock futures ES00,
+0.13%

NQ00,
+0.21%
squirmed in front of the open sky. Crude Oil Futures CL.1,
-0.45%
advanced, and the yield on the 10-year Treasury TMUBMUSD10Y,
3.109%
remained above 3%.

the buzz

The economic calendar includes durable goods orders, which were flat against expectations of healthy progress. At 10 a.m. Eastern, the pending home sales report will be released. The more technical preliminary benchmark review of the establishment survey will also be released, which will show how well the Department of Labor has done in measuring job growth.

Nordstrom JWN,
-19.14%
stocks will slip after the retailer lowered its outlook for the year. Urban Outfitters URBN,
-1.49%
also reported a difficult quarter, and homebuilder Toll Brothers TOL,
+2.87%
the delivery guidelines lowered.

There are major post-closure earnings releases when tech companies, including Salesforce.com CRM,
+1.42%
and Nvidia NVDA,
-0.61%
report results. Cathie Wood’s ARK funds sold shares in Nvidia ahead of results.

Meme stock Bed Bath & Beyond BBBY,
+11.72%
has found a source of funding for a loan agreement, The Wall Street Journal reported, citing people familiar with the matter.

The White House is expected to unveil a plan to reduce $10,000 in student debt for those earning less than $125,000.

Minneapolis Fed President Neel Kashkari said the Fed should continue to tighten interest rates.

The best of the internet

In a post-Fukushima shift, Japan is planning new nuclear power plants.

The warehouse real estate market is returning to Earth.

This non-profit organization aims to buy homes before investors do.

Top tickers

These were the most active stock market ticker symbols on MarketWatch as of 6 a.m. Eastern.

ticker

Security name

BBB,
+11.72%

Bed Bath & More

AMC,
-3.14%

AMC entertainment

TSLA,
+1.48%

Tesla

GME,
-2.74%

GameStop

MONKEY,
+4.49%

AMC Preferred Share Units

AAPL,
-0.32%

Apple

NIO,
+3.66%

Nioz

BBY,
-0.60%

Best Buy

STBX,
-25.80%

star box

AMZN,
+0.01%

Amazon.com

The graph

Right now, the big question in the markets is whether a bear market rally or a new bull market has started this summer. Jurrien Timmer, director of global strategy at Fidelity Investments, says that if this is a new bull market, it seems pretty much in the middle of it so far, both in duration and size.

Random reads

NASA has created the “sound” of a black hole.

Australia, which made avocado toast popular, now has too many avocados.

Need to Know starts early and updates until the opening bell, but sign up here to get it in your email box once. The email version will be sent around 7.30am Easter.

Leave a Comment