Value Stocks Lag Growth Stocks So Far this Year
$FB, $AMZN, $AAPL, $NFLX, $GOOGL
The Top 10 stocks, mostly in the tech industry, account for almost half the S&P 500’s gain of 7.7% YTD. In contrast, the S&P 500 Value Index has marks just a 2% gainer so far in Y 2017, trailing the‘Growth Index’ of faster-expanding companies according to the data.
That growth has been concentrated in a handful of technology stocks, dubbed “FAANG” group: Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Google (NASDAQ:GOOGL).
Note: These stocks may be due for a reversal, similar to past cycles so caution is the watchword in here.
The NAS Comp index of large technology stocks has just notched up its 7th monthly gainer running, its longest streak since Y 2009, and it has only rallied for 8 months running 2X before, in Y’s 1986 and 1995.
Value stocks, such as financial and industrial companies, surged after the election of Republican Donald Trump on a platform of tax cuts, less regulation and billion-dollar spending on roads, bridges and airports, they have paused some in Y 2017
Stocks have gotten expensive compared with their historical averages.
The S&P 500 is trading at more than 21X its earnings, 30% higher than the long-term average of about 16X. The Shiller “Cape” ratio, which tries to smooth out short-term blips, is at 30X, comparable to the 1929 peak that preceded a crash.
The growth in corporate profits is also cited as a driver of market gains, but 1 strategist says investors need to be wary of those reports.
The global strategist at French bank Societe Generale, said earnings reports for US companies show that their overseas profits have grown but are still falling domestically. The decline may even point toward recession.
The S&P 500 is up 13% to record highs since Donald Trump won the Presidency on 8 November. The market’s moves have mirrored investor perceptions of The Trump Agenda, such as tax cuts and healthcare reform and America First trade deals.
Business investment is a Key part of calculating GDP (gross domestic product), or the total value of goods produced and services provided in a country.
The Fed may be in the process of raising interest rates as the US economy shows signs of strengthening, but that may not happen as announced after the May FOMC meeting.
If the Fed continues to hike rates, that 10 of the 13 post-war tightening cycles have ended in recession.
When (not if) another recession unfolds in the US, the Fed will have to buy more government debt, and drive yields on 10-year Treasury’s to less than Zero percent, similar to the monetary policies of Japan and the European Union, that means juicing the markets again.
Have a terrific weekend.
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