[market] inflation at 6-year high, real yield at record low, we still like growth

U.S. inflation 5 year expectations have surged to the highest since 2015 as the economy reopens from COVID-19-related shutdowns, amid a backdrop where the FED policymakers have been talking down inflation expectations. The FED previously characterize the increase in “transitory” (link), yet if inflation is high enough for a long period of time, there is a general belief in the market that the FED will start to weigh in on rate hike. Recall, we just call the ex-FED Chair dropping a comment on rate hike not too long ago (link).

That explains the latest round of selloff in global tech stocks. Things are tumbling around the world – Alphabet (GOOGL) was down ~3% yesterday, Facebook (FB) down 4%, Alibaba (BABA) is down 3% right now, Tencent is down ~4%, Meituan down ~5%, and Weimob is tanking 10%. Indeed, a little scary. 

That said, if you look at the 10 year nominal Treasuries yield, there is no material increase in the level of 10 year Treasuries. In other words, the 10 year real yield (calculated as 10 year nominal Treasuries yield minus inflation expectation) has been declining; in fact, when you look at the level of 10 year real yield, it is almost as low as it has been. Added to that is the fact the nonfarm payroll data that came out last week wasn’t as strong as expected, supporting the FED’s caution stance on the economy. 

All said, I believe the market is making an excuse to take profit on growth stock around the world. If you ask me, real yield is still in the negative territory, and partial ownership in companies that offer steady / secular long term earnings growth is still valuable. Again, it may not be time to go all in (there never is), and I would keep buying if you have the money to afford.