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Stock futures are edging up as March kicks off, while some Asian shares soared on a big rebound in China factory activity data.

Of course, there’s the risk that strong China growth could keep global inflation pressures higher, forcing U.S. and Europe long-term bond yields to rise even more (see Markets). That leaves equities “caught between responding positive to growth or negatively to inflation and potentially higher interest rates,” say analysts at Saxo Bank.

Our call of the day is all about stock/bond relations, which have moved into some rare territory, but which may ultimately be good news for equity investors.

“For the past 30 years, the correlation between stocks and bonds has been negative. But last year, the trailing three-year correlation turned positive for the first time since November 2000. This is something that many investors today have never experienced in their professional lives,” Greg Obenshain and Noah Kreutter, strategists at global asset manager Verdad, told clients in a note.

SBBI Ibbotson US Large Stocks and US LT Govt until 1989. Bloomberg thereafter.

The shift was caused by post-COVID stimulus inflation spikes that forced Fed rate hikes, which in turn “triggered the biggest bond market selloff ever and repriced U.S. growth stocks, whose valuations depend on low discount rates,” they say.

Citing a study from investment manager AQR, Verdad strategists say the key to this relationship appears to be the dominance of growth and inflation uncertainty. “Stocks and bonds react to growth shocks in opposite ways: stocks go up and bonds go down. But stocks and bonds react in the same direction to inflation shocks: stocks go down and bonds usually go down more,” they said.

The study also showed inflation volatility was more important than how high or low prices go, and 2022 brought a massive spike in the former, said the strategists.

In the short term, they expect higher stock-bond correlations will stick around, as they tend to be autocorrelated — last month’s correlation tends to predict the next months, etc., which has been the case since 2002, as their chart shows:

Bloomberg, Verdad Analysis

Inflation and growth volatility also tend to persist over periods, they said.

So what’s it all mean? During periods of higher stock-bond correlations, bonds are less likely to offset equity falls and long-duration bonds get less attractive, they say. Those higher correlations also tend to increase the chances of inflationary outcomes that favor commodities such as oil, they say.

Citing an analysis of movements between 1990 and 2023, they say neutral and positive correlation environments tend to be good for equities and oil, while Treasurys and gold benefit from negative correlation environments.

In short, investors looking for one more reason to invest in stocks — and oil — may have found it.

The markets

Stock futures (ES00) (YM00) (NQ00) are up, but benchmark Treasury yields (BX:TMUBMUSD10Y) (BX:TMUBMUSD02Y) are nearing 4% after upbeat China news. The dollar (DXY) and oil prices (CL.1) are down. Hong Kong stocks (HK:HSI) surged over 4% after China’s Caixin manufacturing PMI returned to expansion for the first time in six months.

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The buzz

Lowe’s (LOW) shares are down as earnings beat, but DIY-retailer’s outlook is gloomy. Dollar Tree (DLTR), Kohls (KSS), Abercrombie (ANF) and Wendy’s (WEN) will also report.

Reata stock (RETA) is up 165% after Food and Drug Administration approval of its rare-disease drug, while biotech Novavax (NVAX) is off 20% on surging losses and a warning of limited cashflow. HP (HPQ) is up slightly after an earnings beat, though revenue tumbled. Theater chain and meme-stock AMC (AMC) reported a 14th-straight loss.

Salesforce (CRM), facing a crucial earnings report after the close, has reportedly been paying actor Matthew McConaughey over $10 million a year as it lays off workers. Software groups Okta (OKTA), Snowflake (SNOW) and gun maker Smith & Wesson (SWBI) will also report later.

Opinion: Marc Benioff’s Salesforce fairy tale is crumbling down around him

After vowing no layoffs, General Motors (GM) is reportedly axing 500 jobs.

Tesla’s (TSLA) long-awaited investor day has arrived. CEO Elon Musk promised to unveil a “path to a fully sustainable energy future for Earth.” Meanwhile, service at Musk’s Twitter was spotty in the early hours.

The final February S&P global U.S. manufacturing purchasing managers index is due at 9:45 a.m., followed by the Institute for Supply Management manufacturing survey and construction spending at 10 a.m. Minneapolis Fed President Neel Kashkari speaks at 9 a.m.

A head-on collision between Greek passenger and freight trains killed 36 people and injured dozens.

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The chart

The most bearish period of the year has arrived for sugar, one of the priciest and most overbought commodity markets right now, says Dave Whitcomb, founder and head of research at Peak Trading Research.

“If you liked buying seasonal dips in January and February … it’s time to start selling rallies in March, April, and May. This is a strong seasonal trend pushing against one of the most expensive commodity markets,” he says, adding that if this trend gains traction, prices go could even lower.

The tickers

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

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