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Wall Street Week Ahead: Investors bet bounce in value stocks will stick

Stock MarketsJun 12, 2020 11:30PM ET
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© Reuters. New York Stock Exchange opens during COVID-19

By David Randall

NEW YORK (Reuters) - As the U.S. economy begins to emerge from the sharp slowdown during the coronavirus pandemic, some fund managers have been drawn to value stocks, a sector that underperformed during the recent rally.

Value stocks, which typically sport lower price-to-earnings valuations, tended to underperform growth stocks during the bull market that ran for more than a decade and ended this year.

That pattern has recently reasserted itself: The S&P 500 Value index was up just 4.5% over the last month compared to a 5% gain in the S&P 500 Growth index.

Yet better-than-expected readings on U.S. employment and other indicators have money managers thinking about lightening up on the stocks driving the rally in favor of sectors such as financials and energy. A sustained bounce in these economically sensitive areas could be an encouraging signal for the nascent recovery, investors said.

The coronavirus pandemic "reset the economy back to a recession, and now you're in a brand new economic cycle. That typically favors value names," said Ernesto Ramos, head of equities at BMO Global Asset Management.

Ramos has been buying shares of companies he believes will get a boost when consumer spending rebounds, including Sprouts Farmers (NASDAQ:SFM) Market Inc. Shares of the company trade at a trailing price two earnings ratio of 15.5, well below the broad S&P 500's trailing ratio of 22.2. He also owns shares of PepsiCo (NASDAQ:PEP) Inc and U.S. supermarket chain Kroger (NYSE:KR) Co.

Phil Orlando, chief equity market strategist at Federated Hermes (NYSE:FHI), has been shifting away from technology and healthcare stocks and into financial and energy companies. Technology stocks in the S&P 500 are up nearly 30% since the start of April, while finanical stocks are up 20%.

"We think they will provide leadership here as the market starts to shift from a risk-off position to more of a risk-on," he said.

Investors will watch a raft of U.S. data next week including retail sales and business inventories for more evidence of an economy on the mend. On Thursday, the S&P 500 notched its biggest daily drop since mid-March after a cautionary economic forecast from the U.S. Federal Reserve and concerns over a possible resurgence of Covid-19.

"We’ve always said that what started with the virus will end with the virus," said Katie Nixon, chief investment officer at Northern Trust (NASDAQ:NTRS) Wealth Management.

Increased uncertainty over growth or the pandemic's trajectory could push investors back into the growth companies that have delivered performance in recent months, even as the U.S. economy reeled from countrywide shutdowns, she said.

Despite those concerns, some fund managers who have benefited from the jump in momentum stocks are becoming more cautious, expecting that value will soon regain favor.

"In the short-term, people have been hiding out in a handful of names," said Mike Lippert, portfolio manager of the Baron Opportunity Fund. "Sooner or later we will get a real economic recovery and from that point the stocks that were thrown out will lead the market."

Wall Street Week Ahead: Investors bet bounce in value stocks will stick
 

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Comments (9)
bruce johnson
bruce johnson Jun 14, 2020 11:00AM ET
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now forecasters are even lowering outlook to $110, that's 1760 on S&P good luck.$250 on S&P 4000 hilarious
bruce johnson
bruce johnson Jun 14, 2020 10:52AM ET
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S&P normal p/e 16 at $130. Comes to 2080 for 2020. $150 2400 for 2021 Buffet said nothing worth buying.
ADAM FANNING
ADAM FANNING Jun 13, 2020 5:54PM ET
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I dont think anyone can predict at this point. The market is moving abnormally.
Kaveh Sun
Kaveh Sun Jun 13, 2020 1:51PM ET
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Buy quality stocks. Dont buy them because they r cheap(value). Unless u have Buffett money, holding time n expertise.
heather bailey
HeatherWins Jun 13, 2020 10:42AM ET
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There will be a huge correction to come. In many cases, people have bet on stocks and the share prices are at or above their pre-COVID levels. The market is looking forward always. Well, the pre-COVID levels of price shares were set with growth anticipated. Instead, we have seen in many cases huge contractions and all with no real idea of when to expect to get back to profitability pre-COVID. People are investing that the companies will show earnings that are stronger than they were before the pandemic. If the number 100 represented pre-Covid. Then now we are at 30. 70% less sales or more for most. How can you invest as if the number is now 130? This is bad.
Joanna Yin
Joanna Yin Jun 13, 2020 10:42AM ET
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if only reality check, it should be down. But now stock market is only daily gambling game.
Daniel Bohbot
Daniel Bohbot Jun 13, 2020 10:42AM ET
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I totally agree with you Heather & Joanna. How theses cllowns like these Robinhood investors (1st time investors because a lot of them are denerate gamblers and need a fix) are able to manipulate stock indexes and prices is beyond me. The situation is horrendous and the markets are flying.
Muhamed Jaffir
Muhamed Jaffir Jun 13, 2020 10:42AM ET
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You can't even invest in ETFs right now because they are all weighted FAANGM Nvidia et cetera. Amazon is unlikely to make a profit this year. They are offering 0% interest 60 month payment plans on purchases...
Raul Perez
Raul Perez Jun 13, 2020 10:42AM ET
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Where else con someone put their money? Hold cash?
Allan De Guzman
Allan De Guzman Jun 13, 2020 10:42AM ET
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What huge correction? only tech boost up some stock still behind .
djavid hosseini
djavid hosseini Jun 13, 2020 9:56AM ET
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Nasdaq need a big correction , which i belive will crash after we done with covid , so be ready when that happens probably 2021
djavid hosseini
djavid hosseini Jun 13, 2020 9:56AM ET
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Skinny Moose im nobody , im just giving my opinion .
Kristian Mendoza
Kristian Mendoza Jun 13, 2020 8:39AM ET
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i want to express gratitude for those who write on this platform.im new to investing and i appreciate everyone's thoughts and perspective here because it guides me and it also reminds me to tread cautiously with this economy.Some people have speculated that this week will be a bad one for the SPY due to Mr.Powell speaking again on Wensday, the increase in corona virus cases and discussing numbers regarding our economy that will be extremely low.Can someone explain this correction to the economy means and what they predict this week may look like? Thank you all again.God bless you.
djavid hosseini
djavid hosseini Jun 13, 2020 8:39AM ET
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It depends what are your goals here , short medium long term investment!
Kristian Mendoza
Kristian Mendoza Jun 13, 2020 8:39AM ET
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Thank you for responding. i was introduced to options trading as a way to capitalize when the market is dropping but its not the way i invision myself living for the rest of my life in options trading especially when i am not well informed on the market.So long term is what im looking at.As someone with experience what are your thoughts on options trading vs long term investing?
Chris Sundo
Chris Sundo Jun 13, 2020 6:27AM ET
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Let's have a MONSTER GAP-UP (over all hurdles) and a Run-Away market day, on Monday ;) __ Let's have some serious fire works. After all, we need to retest recents highs better sooner than later and buy the rumor of pent-up demand for goods and services by spend-hungry shoppers who were cooped up at home and could not spend in order to spend and be happy :)
djavid hosseini
djavid hosseini Jun 13, 2020 6:27AM ET
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I think this time dow will hit 28k or 29k before going to crash back to 20k
Dr Atlas Kilicer
Dr Atlas Kilicer Jun 12, 2020 9:21AM ET
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It was a major correction only: For S&P500, during the revival period following 03.23, there were 4 major corrections: (03.31 / 04.02) 7.64%, (04.17-21) - 5.84%, (04.30 - 05.04) - 6.56% and (05.11-14) 6.4%. Yesterdays fall was the 5th correction (06. 09-11) - %7.17 completed. Index to see 3300s next week.
Chris Sundo
Chris Sundo Jun 12, 2020 9:21AM ET
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Good work, man. 1.) Month-end March, 2.) Mid-month April, 3.) Month-end April, 4.) Mid-month May .. 5.) Now Mid-month June. -- Nice pattern slowly spreading out, makes total sense.
 
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