So-called “value” stocks – those trading at low multiples of their net worth – are outperforming growth stocks, such as those in tech, by the widest margin since the tech bubble burst in 2001, Dow Jones Market Data reported.
Stocks trading at those low multiples in 2020 tended to be the ones hit hardest by the COVID War-inspired worldwide economic collapse, such as shares of banks, energy producers, and other “cyclical” stocks that rise and fall with the economy.
With the economic future brightening, stock prices for those businesses are climbing, while those of companies that benefited from the lockdowns, such as Apple and Amazon, are cooling.
The Russell 1000 Value Index has jumped 11 percent this year, while the Russell 1000 Growth Index has nudged up only 0.2 percent.
As this month began, Russell’s value index was trading at 21.89 times the previous 12 months’ earnings; the growth index was at 37.22, making value stocks a bargain by comparison.
Profits for the financial, industrial, and materials sectors are predicted to swell 89, 38, and 22 percent respectively this year, according to analysis firm FactSet; in contrast, tech profits are seen as adding 18 percent.
Among investors’ newfound favorites as noted by the Wall Street Journal: JPMorgan Chase and Bank of America shares have gained 20 percent this year, Chevron is up 32 percent, and Exxon more than 80 percent. All four stocks sank last year.
Energy stocks have floated up on the rising price of oil, with benchmark Brent crude’s price increasing 34 percent since 1 January and returning to pre-pandemic levels.
TREND FORECAST: With the massive injections of monetary methadone flooding the economic system, the markets are now trending toward true value rather than expected growth potential. “There’s pent-up demand driving accelerating earnings growth, especially among these value stocks that were hurt last year,” Jimmy Chang, chief investment officer at the Rockefeller Global Family Office, told the Wall Street Journal. “We still have more fiscal stimulus coming, so that will further turbocharge their growth.”
Indeed, it will be a “turbocharge” followed by a massive meltdown when the fiscal and monetary money pumping schemes begin to run dry as inflation and interest rates rise.
