Displaying items by tag: Growth
It has been a long, long, time since value stocks really had a shining moment. Growth has been outperforming value for over a decade now. However, strategists at JP Morgan say that value stocks may start to shine very soon. This underlying parts of this economy—weaker but still improving—are the exact conditions where value stocks traditionally shine. These pre-requisites for success seem likely to stay in place. There does not appear to be a second wave of infections brewing, there is ample government support for the economy, and economic data is trending more positively than negatively.
FINSUM: The typical rotation into value (such as in 2008-2009) takes over 100 days and has 18% upside. The logic here is sound, but we still wonder if value will outperform growth.
The OECD sounded a big alarm this week about the threat of coronavirus to the economy. The group of rich countries announced that coronavirus may have a devastating effect on the economy, cutting growth in half. The organization said that growth this year could shrink to 1.5% from its previous forecast of 2.9% growth. It said the outbreak and actions taken in China would cut global growth by 0.5 percentage points alone, not even factoring in the rest of the world’s outbreak and response.
FINSUM: So long as the virus keeps spreading and negative headlines keep coming, more and more economy-shrinking actions will follow. Markets will react in kind.
Many are currently having trouble choosing between growth and value stocks. On the one hand, growth stocks look outrageously expensive, yet have momentum on their side, while value stocks look like a great buy because of their discount compared to the market. However, there are a handful of stocks where you get the best of both. These stocks have both growth and value characteristics. Here are some of the diverse names to look at: General Motors, State Street, Marathon Petroleum, H&R Block, and Qualcomm.
FINSUM: If you can get good earnings growth and strong value in the same package, what is not to like?
Every investor is trying to figure out if coronavirus is going to have a major impact on markets this year, or will soon just be a forgotten blip. Goldman Sachs has weighed in on the issue and says investors should not worry much, as coronavirus’ impact will be “limited”. The bank says coronavirus could slow US growth by 0.5 percentage points in the first quarter, but that would easily be made up in Q2 and Q3. According to Goldman, “Investors who believe the economic consequences of the coronavirus will be limited should increase exposure to cyclicals and value stocks”.
FINSUM: We aren’t sure we entirely agree. A lot of this depends on how long the virus keeps China shut down. Growth there is not as great as during SARS in 2003, so this could actually lead to a global recession.
Stocks are roughly flat on the year, and there is a growing body of evidence that we may have finally come to the end of this economic and market cycle. Commercial construction is slowing, car sales have peaked, and banks are tightening lending standards even as demand is falling—all signs of an economy headed downward. According to Mike Larsson of Weiss Ratings “It is the type of stuff you see at the end of credit and economic cycles … I am concerned about the durability of this market and economic expansion”.
FINSUM: Only time will tell if the economy slows down. If so, markets will probably follow suit. Q4 GDP numbers were not nearly as good as they looked, as without trade war related boosts, growth would have only been 0.6%.