Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Analysis: Fund managers see value, cyclical stocks running further despite slow U.S. jobs recovery

Stock MarketsMay 07, 2021 07:14PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A man walks past the New York Stock Exchange on the corner of Wall and Broad streets in New York City, New York, U.S., March 13, 2020. REUTERS/Lucas Jackson

By David Randall

NEW YORK (Reuters) - While some technology stocks got a boost Friday after a disappointing U.S. jobs report, some portfolio managers say that blow-out earnings from several large technology companies over the last few weeks are not enough to keep making outsized bets on the sector.

Instead, those fund managers say that they are continuing to rotate into value and cyclical stocks - whose fortunes are closely tied to economic conditions - in anticipation that the economic recovery will be longer and more gradual than originally anticipated.

The notion that the U.S. jobs recovery has not yet peaked was reinforced by data from the Labor Department on Friday that showed U.S. employers hired far fewer workers than anticipated. The lower-than-expected job gains are likely to keep the Federal Reserve's accommodative measures in place for an extended period, economists said.

The transition between the stay-at-home economy and a full reopening will likely take at least a year, leaving value stocks more attractive than technology shares over that time, said Barry James, a portfolio manager at James Investment Research, who remains underweight in technology.

"In the short run, it may bounce back and forth but we think we are in for at least another year or more of this transition," he said.

Large technology stocks rallied Friday after the jobs report tampered concerns about inflation and pushed the yield of the 10-year Treasury near a 2-month low, but the direction of the economy regains intact and should continue to favor cyclical stocks over defensive stocks, said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute.

"We would not read too much into any one jobs report, and continue to think the labor market remains on track and will be more than enough to underpin consumer confidence and consumption," he said.

Despite Friday's gains, large-cap technology companies continue to lag the broad market. Apple Inc (NASDAQ:AAPL) is down nearly 2% for the year-to-date, Amazon.com Inc (NASDAQ:AMZN) is up less than 2%, and Netflix Inc (NASDAQ:NFLX) is down 6.5%. Overall, the technology sector is up 6.8% for the year-to-date, about half of the 12.6% gain in the broad S&P 500.

Instead, value companies in such cyclical areas such as financials, energy, and consumer discretionary are surging. The Russell 1000 Value index is up 18% for the year to date, including a 0.7% gain Friday, while the Russell 1000 Growth index is up 6.3%, and gained 0.6% Friday.

"You had some people saying, that is as good as it gets across the board. Peak momentum, peak growth, peak earnings, but the market is misperceiving the backdrop here. You are going to end up with robust levels of growth for the remainder of this year," said Jack Janasiewicz, portfolio strategist and portfolio manager at Natixis Advisors.

Funds that have remained heavy in growth stocks jumped Friday, with the ARK Innovation ETF adding 1.4% by mid-afternoon. Yet the fund remains down more than 10% for the year.

At the same time, the stretched valuation of large technology companies makes them less attractive than cyclical stocks that will most likely see the greatest economic boost over the next year, said George Young, a portfolio manager at Villere & Co.

The S&P 500 technology sector, for example, trades at 33.8 times trailing earnings, more than double that of the S&P 500 financial sector, which trades at 16.2 times trailing earnings.

Young has been adding to his position in cyclical companies like casino company Caesars (NASDAQ:CZR) Entertainment Inc, a position he called "the opposite of the stay-at-home trade."

"People are turning the corner and saying 'We can see the light at the end of the tunnel and we don't have to say at home anymore,' so investors are looking for what's the next thing," he said.

Analysis: Fund managers see value, cyclical stocks running further despite slow U.S. jobs recovery
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Steve Lora
Steve Lora May 09, 2021 3:17PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
My neighbor has a 24 month CD at .075 and his bank mgr brags about the rates
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email