Por Lewis Krauskopf
NEW YORK, Apr 9 (Reuters) – The rally in growth and tech stocks prompts investors to review whether the month-long rise in stocks in banks, energy companies and other business-cycle sensitive sectors is wearing off or just taking breath.
The Russell 1000 Index of Value started 2021 with its highest quarterly return relative to its growth pair in 20 years, as investors put money into stocks of penalized companies that they thought would benefit more from a return to economic activity in the United States. United for vaccines.
The script has been reversed since mid-March, and the Russell Growth Index has gained more than 6%, compared with a rise of just over 2% for value. Some investors wonder if the market has already priced expectations of a powerful economic rebound from stimulus, infrastructure spending and vaccine distribution.
“We’ve had a tremendous move” in value stocks, said Mona Mahajan, senior US investment strategist at Allianz Global Investors. “We are probably in the phase where we want to be a little more cautious, a little more selective.”
Business cycle dependent stocks generally trade at a low price / book ratio. Investors still see plenty of room for improvement in the group, where stocks remain cheap after a decade of being crushed by big names like Amazon, Netflix and Alphabet.
Despite their recent rally, value stocks are still 11% below their historical average discount to the market, using the ratio of price to book value and other measures, according to Solomon Tadesse, head of income research. American quantitative variable from Societe Generale.
The discount is roughly comparable to the situation for value companies in November 2008, when the financial crisis was in full swing.
According to Peter Berezin, head of global strategy at BCA Research, value stocks are also trading 74% cheaper than growth stocks. The last time such a distance was seen was during the dot-com boom more than 20 years ago, Berezin said.
Investors betting on the so-called reflation (growth and inflation) say that this discount gives value stocks a lot of room to move forward, considering that the Federal Reserve expects the US economy to expand 6.5% in 2021, its best performance in almost 40 years.
“We’ve had some false starts, but I think this time it’s real in terms of value trading,” said King Lip, chief strategist at Baker Avenue Asset Management, which has leaned toward value in its portfolios by overweight financials, industrials. and raw materials.
Good results from banks and other valuable companies could encourage gains in the sector. Quarterly reports from JPMorgan Chase and Citigroup will kick off the earnings season next week.
Overall, 2021 earnings for Russell 1000 value companies are expected to rise 26.4%, beating a forecast increase of 17.7% for growth index companies, according to data from Credit Suisse late. of March.
Still, some investors expect growth stocks to continue to perform better than expected, as they have for most of the time since the financial crisis. The Russell Growth Index has risen more than 700% since the beginning of 2009, more than double the value.
“I think the easy money in value stocks is over,” said Rick Meckler, partner at Cherry Lane Investments. The value “has closed the gap long enough that if the market has more room to go up, it will probably go back to the names that investors love, the growth names.”
Some investors say any sign of a coronavirus resurgence could spur a return to lockdown-related trading that boosted tech stocks last year.
Investors are also keeping an eye on the US Treasury market, where selling has slowed in recent weeks after the 10-year Treasury yield rose more than 80 basis points in the first quarter.
Rising yields could hurt tech and growth stocks, whose cash flows tend to be longer-term and are more discounted in standard equity pricing models when bond yields rise.
With a lot of stimulus in the markets and investors focused on inflation, “I don’t see a compelling case for the 10-year (yield) to keep going up and there will be more rotation (towards value),” said Ross Mayfield, strategist. investment company.
(Reporting by Lewis Krauskopf; additional reporting by Chuck Mikolajczak; Edited in Spanish by Javier López de Lérida)