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The story in the markets since November’s election has been clear: Massive government spending and Covid-19 vaccinations mean boom times are here, so pile on the risk. Small, cheap, economically-sensitive stocks are good, while bonds, big, bondlike stocks and those that react strongly to interest rates are bad.

Yet for the past month, the exact opposite has been the case. The “reflation trade" bet that a pumped-up economy would benefit riskiest assets the most started shortly before Joe Biden was elected, but since March 8, has gone almost perfectly into reverse.

The mega-sized stocks beat the merely large, which beat the big, with the small stocks bringing up the rear. Cheap “value" stocks lagged more expensive growth stocks once again, with Big Tech firms such as Facebook, Apple, Amazon and Microsoft beating the S&P 500, having trailed it since the election. Bond yields were barely changed. And boring defensive sectors such as utilities and real estate—the stuff you buy when fear rather than greed dominates—did well.

I have three theories for why the market didn’t fit the narrative:

•It was all about foreign investors. This explanation holds the most hope for the future: Japanese and European investors facing rock-bottom bond yields switched tack and poured money into U.S. Treasurys in the past month to earn more than they could locally, even after hedging the currency risk.

The cash coming in put a lid on Treasurys. Currency hedging meant the new money didn’t push up the dollar too much, which can otherwise weigh on what companies earn abroad. Stocks that had been threatened by higher yields felt the relief of a pause, at least, in what many had feared was an inevitable march up to 2% on the 10-year note, from 1.64% on Thursday.

“More and more, we hear clients saying ‘hey, look at how much U.S. govies [Treasury notes] offer compared with what I can get in Europe," said David Zahn, head of European fixed income at Franklin Templeton.

Taking away the threat of higher yields is good news for bond proxies such as utilities and real estate, which tend to suffer when yields rise. Higher yields are also a headwind for Big Tech stocks and others such as Tesla whose earnings prospects are far in the future, and look less attractive compared with a bigger income from safe Treasurys. The sectors that had been winning since the election, especially banks, oil drillers, industrials and materials, all lagged, although only energy stocks actually fell, hit by lower oil prices.

•The reflation news was already priced in. Investors knew the economy was going to boom, so when it did, they were unfazed. The economic data in March was solid, but a bit less good than some of the earlier figures, removing some of the upward pressure on bond yields. The economic story is backed up by commodity prices: Oil peaked a month ago, and economically-sensitive industrial metals had already come off highs reached in late February.

•Risks to reflation are rising. Much of Europe is struggling with a serious third wave of Covid-19, and warnings of virus trouble in the U.S. are growing louder despite increased inoculations. Meanwhile, U.S.-China tensions increased again, and concerns are rising about its military activity near Taiwan.

Eric Lonergan, who oversees multiasset funds at M&G Investments, said after the big rise in yields earlier in 2021, he had been buying 30-year Treasurys as protection against any unexpected event upsetting confidence.

“If something goes wrong there’s a very high probability that Treasurys will rally 100 basis points [1 percentage point], because they have sold off 100bp," he said.

Similarly, Dan Fuss, vice chairman of Loomis, Sayles & Co. in Boston, said he was taking less risk than usual by holding easy-to-sell assets, because of a combination of geopolitics and his concern about widespread debt.

“Markets are high and there’s leverage in the system," he said.

On its own, rising risk doesn’t explain what happened in the stock market, as the highest-risk stocks—value and tiny microcaps—continued to rise, merely by less than the rest.

Most likely is that all three stories played a role.

I still think there is a risk of inflation sticker shock as on-the-year inflation jumps in the next few months, pushing investors back into the postelection story of rising yields, cyclical expansion and value beating growth.

After the past month, it is at least possible that the narrative is switching from the reflation trade back to the old story: Buy growth at any price. But I would be a lot happier with a market looking to economic expansion for its gains than one depending on cheap money from the Federal Reserve.

This story has been published from a wire agency feed without modifications to the text.

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