Taking a closer look at underlying sector and thematic rotations that have occurred over the past two years, we’ve identified four distinct market environments that have existed. Importantly, these have been driven by investors’ collective perceptions of (1) the Fed’s overall tone (i.e., dovishness or hawkishness), and (2) the global growth outlook.
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Taking a closer look at underlying sector and thematic rotations over the past two years, we’ve identified four distinct market environments that have existed. These have been driven by investors’ collective perceptions of (1) the Fed’s overall tone (i.e., dovishness or hawkishness), and (2) the global growth outlook. The market is currently in a Defensive Growth environment. However, we expect another Value Trade to reemerge once coronavirus headwinds fade.
Year-to-date, growth stocks have handily outperformed value (R1G +8% vs. R1V +1%) in the face of coronavirus fears and some other near-term economic headwinds. Over the very near-term, we expect this trend to continue into choppy global economic data and potential uncertainty around the March 3rd ‘Super Tuesday’ democratic primaries. However, looking out from now to year-end, we expect global cyclical economic data to surprise to the upside as coronavirus fears fade and a rebound in global trade occurs. This should drive a sharp reversal from Growth to Value stocks.
Each month, we publish our favorite long idea stock screens. They encompass many investment styles and themes including value, growth, capital creation, cash usage, corporate actions, dividends, and financial institutions.
Crude oil prices have now plummeted by roughly -19% over the past five weeks into coronavirus fears and intensifying global growth concerns. Sharply lower oil prices obviously create significant near-term headwinds for oil producing companies and countries. Persistently low prices also have the potential to create energy-related credit losses, which can negatively impact the high yield credit market as well as bank loan loss trends. (Although, we haven’t yet seen significant signs of stress.)
Last week, the S&P 500 rebounded +3% into a batch of stronger-than-expected economic readings, a rising chance for Washington policy gridlock to continue well past 2020 and fading coronavirus (nCov) fears. Based upon last week’s news flow, one might believe that equity markets are firing on all cylinders. While we’re constructive on the outlook from now to year end, we remain tactically cautious given our views that nCov headwinds have not yet shown up in economic readings and Bernie still has the strongest momentum in the race for the Democratic nomination.
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