(New York)

The S&P 500 and most major indexes have been fairing poorly very recently. However, that presents a major opportunity, says Morgan Stanley strategist Michael Wilson. Morgan Stanley says that as the market declines, now is a great time to shift out of growth stocks and into value. Growth stocks’ forward earnings multiples versus value stocks do not merit further outperformance, so its seems likely that value stocks may start to shine. Energy, industrials, and financials value stocks seem a smart choice, says MS.

FINSUM: This makes sense to us. As economic growth starts to taper, the big valuation gap between growth and value stocks seems likely to fade, meaning the latter should outperform. But then again, that would go against a decade of momentum, so it is a dicey bet at best.

(New York)

One of the largest banks on Wall Street has just gone on the record calling for a major equity market firestorm. In an unusual move, Citi questions the recent rise in stocks and contends that things may unravel quickly. “It may be that easing trade tensions and China’s policy response are comforting investors, but the move has the hallmarks of herd instincts at work”. Citi continued, “riding the tailwinds of easy policy and fiscal stimulus, but these drivers are failing. Meanwhile storm clouds are gathering and risks look biased to the downside”. Goldman Sachs seconded the views, saying that market gains had been too narrow and would lead to “large drawdowns”.

FINSUM: It has been quite puzzling that stock prices have moved higher and higher even as the trade war was looking worse and worse and the Fed continued to be committed to its tightening path. Sharp reversal coming?

(San Francisco)

Last week’s nosedive in Facebook shares was nothing short of historic. Twitter followed close on its heels. The big question for investors is whether these flops signal anything about the greater market, or were they just idiosyncratic falls? The answer is that they may. Stocks are very concentrated at the moment, with a small group of tech stocks—the FAANGS—driving the gains. Therefore, losses in that group could drive down the whole market, and even be seen as a bellwether. Today’s concentration is roughly on par with 1999, but differently, all the leaders are in the same sector—tech, making the market more vulnerable. Because tech companies are also the engine for growth, their predicted expansions make up an even larger share of forecasted earnings growth than their current market capitalization.

FINSUM: We see the point of this argument, but we do want to point out one important caveat: the word “tech” itself. We use that term very liberally today. While it is easy to say the concentration is dangerous because all the constituents are “tech”, Amazon, Apple, Facebook, and Netflix are all very different businesses, so perhaps not as intercorrelated as “tech” would indicate.