The market got turned upside down Monday in rapid fashion underneath the surface and some investors think it may be a warning signal.
The S&P 500 closed little changed for the session, but value stocks — those with low multiples and stable fundamentals — significantly outperformed their growth counterparts. The iShares Edge MSCI USA Value Factor ETF (VLUE) jumped 1.8% on Monday while the iShares Edge MSCI USA Momentum Factor ETF (MTUM) dropped 1.7%. Data compiled by Bespoke Investment Group showed this was momentum’s worst daily performance relative to…
value since its inception in early 2013.
The value fund rose again Tuesday, trading 0.5% higher while the momentum fund dropped another 1.3%. The momentum fund was also headed for its third straight decline.
This shift is unnerving to investors because momentum stocks, those defined by their large growth expectations relative to the broader market, have outperformed value names in recent years. A rotation away from these stocks could result in a downturn for the broader market.
“The rotation, despite it being a positive signal in terms of investor macro sentiment, is probably a net negative for the overall SPX in that super-cap tech will likely be caught up in the selling and these stocks dominate the index weighting,” Adam Crisafulli, executive director at J.P. Morgan, said in a note.
Momentum or growth stocks have blown their value counterparts out of the water over the past five years. In that time, the MTUM exchange-traded fund is up more than 130% while VLUE has gained nearly 70%. This year has been no different.
Growth stocks have also outperformed the S&P 500 over the past five years. The broad index has jumped 108% in that time.
Most of the top-performing S&P 500 stocks this year are growth names. Seven of the 10 best-performing stocks in the benchmark — including Chipotle Mexican Grill, Advanced Micro Devices and MarketAxess Holdings — have a much higher valuation relative to the broader index, FactSet data shows. Monday’s session was the complete opposite to the year’s trend…
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