These beaten-down stocks should be big gainers, but investors aren’t in a bargain-hunting mood, says mktwhulbert
Value has not outperformed growth since the bull market high on Feb. 19. You might not think that particularly noteworthy; value has been lagging growth for much of the last decade. What’s another couple of months?
It’s certainly understandable why value’s adherents had such high hopes for this bear market. During the bull market that just ended, they argued, growth stocks were made artificially attractive by the presence of what some referred to as the “Fed Put” — the implicit guarantee that the Federal Reserve would make sure the economy never slipped into a recession.
The contrast with value’s performance over the last six weeks is stark. Vincent Deluard, Global Macro Strategist at INTL FCStone, acknowledges that value’s disappointing performance since the Feb. 19 highs “has been especially painful” for those who have been betting on value’s resurgence. He nonetheless argues that it is nevertheless “justified on a fundamental basis.
At the same time, he continues, value stocks “will be pushed down,” relative to growth stocks, because the Fed’s willingness to lend money won’t help value stocks. That’s because, Baker argues, “borrowing will not make them grow.” The key variable here is the increased uncertainty. The unprecedented degree of intervention in the capital markets means, Rodriguez argued in a recent letter published at the AdvisorPerspectives website, that “there is now absolutely no accurate pricing discovery in the capital markets.” And without such price discovery going forward, it’s anyone’s guess whether value will or will not outperform growth.
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