Mid-week market update: If you hadn’t known that it was FOMC day, you would have looked at the closing market diary and shrugged. The S&P 500 closed only +0.3% on the day. Beneath the surface, however, a lot has been going on in the past few weeks. Analysts who try to call the direction of the US equity market are facing an especially difficult time as they are encountering a bewildering array of both bullish and bearish sentiment readings. That’s because the stock market has bifurcated into a growth stock market and a value stock market. There is no more single stock market anymore. This chart of the Russell 1000 Value to Russell 1000 Growth ratio tells the story. After value stocks opened a “Vaccine Monday” runaway gap last November, value stocks have made their way higher
Cam Hui considers the following as important: Free Posts, Growth investing, sentiment analysis, Technical analysis, Value Investing
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Mid-week market update: If you hadn’t known that it was FOMC day, you would have looked at the closing market diary and shrugged. The S&P 500 closed only +0.3% on the day. Beneath the surface, however, a lot has been going on in the past few weeks.
Will the real bullish or bearish indicator please stand up
What’s the real story?
Next Tuesday marks the 12-month anniversary of the MSCI AC World Value Index’s eight-year low, a key timeframe that many quantitative models use to screen for momentum shares to buy. May 6 would be the six-month anniversary of the relative low for value stocks against their growth and momentum peers — their outperformance began after the election of U.S. President Joe Biden.
The recent snapback in growth stocks was a golden opportunity for value investors to buy the dip. While it’s always difficult to look through the market noise on FOMC day, look to the trend as being your friend – and the trend is value stocks.
Finally, don’t be afraid of rising rates. The Rising Rates ETF (EQRR) is heavily weighted in value and cyclical sectors. EQRR remains in a well-defined uptrend, both on an absolute basis and relative to the S&P 500.
The Fed’s statement, dot plot, and the statements from Powell’s press conference all underscore the point that the market backdrop is reflation friendly. Long live the value and cyclical trade!
Addendum: As a point of clarification, a reader asked me to define what I mean by growth and value. In general, growth stocks can be found in technology, communication service, and AMZN and TSLA in the consumer discretionary sector. Value and cyclical stocks are in financials, industrials, energy, materials, and consumer discretionary excluding AMZN and TSLA.