Stock Market Today: The 'Reflation Trade' Kicks Back Into High Gear

One session removed from a wild red-to-green finish for stocks, the market went back into rotation mode Monday, pulling the rug out from underneath the tech sector yet again.

Over the weekend, the Senate passed its version of President Joe Biden's $1.9 trillion stimulus plan, complete with $1,400 stimulus checks (albeit for fewer Americans than the House version). Treasury Secretary Janet Yellen continues to champion the bill, saying it would drive a "very strong economic recovery" that would enable the U.S. to reach "full employment" by 2022.

While she also said she didn't expect the measure to overheat the American economy, bonds continued their recent selloff, prompting the 10-year Treasury's yield to rise above 1.6%.

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The Nasdaq Composite, which clawed out small gains in the morning, finished with a 2.4% decline to 12,609 amid heavy losses for the likes of Apple (AAPL (opens in new tab), -4.2%), Tesla (TSLA (opens in new tab), -5.8%) and Alphabet (GOOGL (opens in new tab), -4.3%). That put the tech-heavy index in correction territory (a decline of 10% or more from a peak) and in the red for 2021.

Meanwhile, the Dow Jones Industrial Average continued its recent spate of outperformance, rising 1.0% to 31,802 on gains from Disney (DIS (opens in new tab), +6.3%) and Cisco Systems (CSCO (opens in new tab), +2.7%), among others.

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Other action in the stock market today:

• The S&P 500 dipped a modest 0.5% to 3,821.
• The small-cap Russell 2000 managed to gain 0.5% to 2,202.
• U.S. crude oil futures receded by 1.6% to close at $65.05 per barrel.
• Gold futures declined yet again, dipping 1.2% to 11-year lows at $1,678.90 per ounce.
• Bitcoin prices improved by 5.3% over the weekend, finishing Monday at $51,800. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

The Reflation Trade

How much longer could this incline in rates continue? John Luke Tyner, fixed income analyst at Aptus Capital Advisors, is among those who believe there's plenty more fuel in the tank.

"Overall we are bullish on the U.S. economy to improve and believe that interest rates (nominal and real) will continue to rise," he says. "The move in rates higher has been global, and the U.S. is one of the only developed countries where yields are still below Covid highs (~1.92%). More stimulus will only help quicken the cause."

That should continue the current rotation into value stocks broadly, and into sectors such as financials and materials specifically – the so-called reflation trade in which a quick bout of inflation "normalizes" interest rates.

Those interested in harnessing this shift have a wealth of options; these seven reflation-trade picks, including both stocks and funds, appear to be juicy opportunities on their own, but also exemplify the areas of the market you should target.