Stay bullish on stocks, bearish on commodities as deflation clouds gather, says this quant strategy

Onto our call of the day from Prometheus Research, which sees promise in a strategy that’s bullish on stocks and bearish on commodities.

“The combination of these bets is particularly interesting in a macroeconomic context— if they continue to trend, it will likely further current market pricing of disinflation,” says Prometheus, whose researchers use quantitative analysis to understand underlying mechanisms driving the economy that can indicate future market trajectories.

Read: 4 reasons the stock market keeps climbing in 2023 as S&P 500 attempts another push above 4,200

The below chart offers a summary of the potential long, short and neutral asset positions based on their trend process:

“Currently, we are seeing a range of potential trends — most of which are skewed the short side. The strongest signals are currently short commodities (WEAT
WEAT,
+2.61%,
CORN
C00,
+1.18%,
SOYB
SOYB,
-0.53%,
DBC
DBC,
+0.40%
) and long equities (SPY
SPY,
-1.12%,
XHB
XHB,
-1.61%,
XLK
XLK,
-1.48%,
XLC
XLC,
-1.24%
),” said the Prometheus team.

The takeaway is that if these trends keep up, investors could see the market keep pricing towards deflation. And their market regime monitor is indicating a rising probability of low growth, low inflation (third column over, in blue) ahead:

The Prometheus view fits with the economic outlook expressed by Steve Englander, head of North American macro strategy at Standard Chartered, who looked at tax receipts for May. “We think inflation and the economy are decelerating more than many in the market and at the Fed believe,” he said.

Also read: Stocks were the only positive asset class over the last decade, adjusted for inflation

The markets

Stocks
SPX,
-1.12%

DJIA,
-0.69%

COMP,
-1.26%
are lower , as bond yields
TMUBMUSD02Y,
4.320%
push higher, with the 10-year
TMUBMUSD10Y,
3.700%
up 3 basis points at 3.73%. Two-year bond yields are up a 9th straight session after hawkish Fed talk. Oil
CL.1,
+2.40%
is flat and gold
GC00,
+0.02%
and silver
SI00,
-1.16%
are falling as the dollar
DXY,
+0.30%
moves up.

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The buzz

Lowe’s
LOW,
+1.72%
stock is down after the home-improvement retailer cut full-year guidance, citing lower demand, while BJ’s Wholesale Club
BJ,
-7.26%,
is lower after confirming its outlook, but disappointing on sales, and AutoZone
AZO,
-5.97%
is dropping on disappointing sales from the car-parts retailer. Dick’s Sporting Goods
DKS,
-1.44%
stock jumped after an earning and sales beat. Intuit
INTU,
-0.95%,
Agilent
A,
-0.35%
and VF Corp.
VFC,
-3.02%
due after the close.

Read: Parade of retailers to face inflation doubts while Nvidia and Zoom answer questions about tech

Yelp shares
YELP,
+5.72%
are up 13% after the Wall Street Journal reported that an activist investor is pushing the company to consider a sale to boost its value.

Shutterstock
SSTK,
-1.46%
is buying GIF and stickers group Giphy from Meta Platforms
META,
-0.64%
for $53 million in cash. Neither company’s shares are moving much in premarket.

Lordstown Motors
RIDE,
-5.30%
set a 1-for-15 reverse stock split. Shares are down 16% in premarket.

Cathie Wood’s ARK Investment loaded up on about $4 million worth of Palantir Technologies stock
PLTR,
+6.76%
across multiple funds on Monday.

“There is a subset of American consumers who will not drink a Bud Light for the foreseeable future,” says JPMorgan, which warns of trouble for Anheuser-Busch’s
BUD,
-0.15%

ABI,
+0.02%
U.S. profits.

The S&P flash U.S. services and manufacturing PMI surveys showed faster economic growth in May, while new-home sales rose to 683,000 in April annually, from a revised 656,000 in the prior month. Dallas Fed President Lorie Logan was also due to speak in the a.m.

Read: Will AI cause mass unemployment? What history says about technology and jobs

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The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

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