From Growth to Value?
Discover more from What the Market?
From Growth to Value?
What you need to know in 5 minutes - Mar 15, 2021
Was this email forwarded to you? Subscribe for access to the Curious Investor:
Looking for investment ideas? Check out the WTM Watchlist
What the Market?
Mr. Market didn’t believe in seasonal depression until the sun came out, and suddenly it feels like he popped a molly. The newfound energy has Mr. Market busy making moves. As things begin to stabilize (volatility is at its lowest point since the pandemic began), Mr. Market is taking profits and reallocating them, causing dips in some sectors while others begin to uptick.
How come?
Signed, sealed, delivered! On Friday, President Biden signed the $1.9T stimulus package. While equity markets reacted positively, bond yields were unphased – suggesting little concern about the influx of capital being injected into the economy.
Someone’s planting Jobbies: Jobless claims were better than expected (712k vs expected 725k) which implies the economy may be reopening faster than expected as vaccine rollout accelerate. However, there is plenty of economic recovery and job creation needed as 18 million Americans are still receiving unemployment benefits.
Who’s afraid of inflation ghosts? CPI data from this week showed no real signs of inflation uptick suggesting the inflation fears and rising bond yield rates are mostly speculative fears. While the amount of borrowing governments have done in the last year is certainly a cause for concern, inflation for the last 12 months remains low at 1.7%. Note that the 10Y Treasury yields roughly 1.6%, which is still a negative real rate!
What’s an investor to do?
Investor mindset
It’s a time to check in, practice the art of Zen, and find balance – in your portfolio that is. Stay calm on market swings, and don’t be afraid to rebalance your positions when it makes sense. The last year has been atypical for the market (and everyone) to say the least. In the last 12 months, we experienced one of the longest and largest bull runs in history. It’s only natural for things to cool off and stabilize a bit, which means 100% returns in 3 months won’t be as replicable. More likely, we will see further corrections and more disparate movement across sectors.
Portfolio management
Volatility is slowly subsiding, and speculative sectors are stabilizing after a quick drop and an even quicker recovery. For those with significant risk appetite in growth sectors, focus on secular long-term trends (e.g., e-sports, IoT, cybersecurity). If your portfolio drops to correction territory on bond yields rising 0.02%, it may be worth moving away from holdings that are so reactive to the noise created by a media desperate for news.
While we’re on the topic of reallocating, consider diversifying towards cyclical and value plays that have been lagging the overarching market for some time now. Some analysts believe both value and growth stocks are overvalued however, value plays seem cheap using traditional valuation measures, as value stocks are only trading at a P/E multiple 5% above historical averages vs. growth stocks, which are 50% above historical averages.
Keep an eye on the economy (TLDR of Calendar)
Fed meeting: The Fed Chairman, Jerome Powell, is expected to once again reiterate the institution’s:
Commitment to keeping interest rates low
Continued bond-buying program (a form of quantitative easing) and
Indifference to a potential rise in inflation
With the economy recovering, the Fed will eventually have to address its massive bond buying, which may shoot the market into a temper tantrum (aka a taper tantrum) as it happened back in 2013. - Policy statement out on Wednesday
The Curious Investor:
To Growth or to Value? That is the question. The answer is, value stocks have outperformed growth stocks this year. Amidst rising bond yields and inflation fears, speculatory assets have nosedived recently. Investors have started rotating from tech to cyclicals to balance out risks and benefit from the impending economic reopening. Traditional value sectors like financials and energy can benefit from rising rates and inflation, while investors looking for reflation trades may boost small caps and cyclicals.
How much wood can a woodchuck chuck? Lumber prices hit all-time-highs as commodities keep rising across the board (some suggesting a supercycle is at play). As homebuilding and renovations uptick on the backdrop of economic stimulus and near zero interest rates, supply is struggling to keep up with demand. This is great short-term news for the residential real-estate industry including homebuilders and contractors, who will benefit from higher margins. For homeowners and final customers, this may cause unaffordable higher prices which could stall construction projects. The National Association of Home Builders and Associated General Contractors of America have urged the White House to intervene. Consider exposure through:
Notable Off-Cycle Earnings
Semiconductors: Qualcomm
Auto: Volkswagen
Logistics: FedEx
Cybersecurity: CrowdStrike
Economic Calendar:
Monday: Eurogroup meeting, Chinese retail sales and industrial production figures
Tuesday: Eurogroup Finance meeting, U.S. retail sales and redbook index, Japanese trade balance
Wednesday: Eurozone CPI, U.S. housing data, Federal Reserve meeting and policy statement
Thursday: Bank of England meeting and policy statement, U.S. jobless claims and Philly Fed manufacturing index
Friday: Bank of Japan meeting and policy statement, U.K. consumer confidence
If you didn’t know, now you know
Hate crimes targeting Asian Americans spiked by 150% in major U.S. cities in 2020. Asian American rights advocates attribute the unprecedented string of attacks to former U.S. President Trump’s rhetoric blaming China for the coronavirus and the scapegoating of Asian Americans by people frustrated with the economic and social impact of the pandemic. Protests have begun in numerous cities including Seattle and New York to pass anti-hate crime legislation.
This summary only covers the surface of the issue. To read more, click here.
What we’re vibing:
The Power of Vulnerability by Dr. Brene Brown. Dr. Brown has conducted over 12 years worth of research on the subject of vulnerability. Be ready for some deep introspection into the vulnerabilities you knew you had, and those you didn’t recognize.
A Very Cold DJ Set by Yotto. Finish DJ and producer Yotto presents an epic deep and dark set in Lapland. With breathtaking views and trip-inducing drops, this set is going to make you want to travel and hit the clubs all at once. A game-changer for those struggling with Monday.
Profits from sale of Epstein’s 51M mansion are going to his victims
GoodRX will provide free prescriptions to Americans that need them
Looking for more?
Resources
WTM Mentions Performance Tracker
A content guide to investing (books, books, books!)
Disclaimer
This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.