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The stock market just experienced the most seismic shift from growth to value since Lehman Brothers,

says Nomura - MarketWatch

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The stock market just experienced the most seismic


shift from growth to value since Lehman Brothers,
says Nomura
By Mark DeCambre
Published: Aug 1, 2018 3:12 a.m. ET

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Will value overtake growth

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How big has the past three-days been for value

Some of the most popular bets in the U.S. stock market have gotten pummeled in recent days, leading one
analyst on Wall Street to declare it one of the biggest rotations from growth stocks into value stocks since
the aftermath of the bankruptcy of Lehman Brothers back in mid September 2008.

In a Tuesday research note, Charlie McElligott, head of cross-asset strategy at Nomura, said the “three-day

https://www.marketwatch.com/...e-most-seismic-shift-from-growth-to-value-since-lehman-brothers-says-nomura-2018-07-31?siteid=rss&rss=1[1/8/2018 4:54:44 PM]


The stock market just experienced the most seismic shift from growth to value since Lehman Brothers, says Nomura - MarketWatch

move in U.S. ‘Value / Growth’ has been the largest since October 2008—a 4.3 standard deviation event
relative to the returns of the past 10 year period…”

See the chart below which shows a growth/value ratio over the past decade:

Source: Bloomberg/Nomura

McElligott’s comments come after the Nasdaq Composite Index COMP, +0.55% booked a three-session
tumble that drove the technology-tinged index to its lowest level in about three weeks—a recent unraveling
sparked partly by disappointments in quarterly updates from key members of the so-called FAANG
contingent. Those include Facebook Inc. FB, +0.89% Apple Inc. AAPL, +0.20%  Amazon.com Inc.
AMZN, -0.10% Netflix Inc. NFLX, +0.74% and Google Inc.-parent Alphabet Inc. GOOG, -0.20%
GOOGL, -0.23%

Both Facebook and Netflix saw their shares fall into bear-market territory on Monday, defined by a decline
of at least 20% from a recent peak, and nearly 40% of the S&P 500’s technology sector is in correction
territory, typically characterized as a fall of at least 10% from a recent top.

What’s more, the NYSE FANG+ index NYFANG, +0.49% which comprises many of the aforementioned
FAANG names as well as Twitter Inc. TWTR, +1.56% electric car maker Tesla Inc. TSLA, +2.75% Nvidia
Corp. NVDA, +0.30% and Chinese e-commerce giant Alibaba Group Holding Ltd. BABA, +1.30% and
Baidu Inc. BIDU, -1.68% fell into correction territory.

The index had enjoyed stellar performance, up 23.4% for the year, compared with a 2.8% gain for the Dow
Jones Industrial Average DJIA, +0.43%  so far in 2018, a rise of over the past seven months of 5.3% for the
S&P 500 index SPX, +0.49%  and year-to-date return of about 11.1% for the Nasdaq.

Read: Opinion: The biggest problem for Facebook and Netflix is they are running out of humans

Popular growth investing strategies, reflecting companies whose profits grow consistently and at faster clip
than the overall market, have by far been the best performers in recent years, compared against traditional

https://www.marketwatch.com/...e-most-seismic-shift-from-growth-to-value-since-lehman-brothers-says-nomura-2018-07-31?siteid=rss&rss=1[1/8/2018 4:54:44 PM]


The stock market just experienced the most seismic shift from growth to value since Lehman Brothers, says Nomura - MarketWatch

value investing, buying shares that are viewed as priced beneath their inherent value.

However, the stumbles in FAANG names have highlighted growth’s recent deterioration, with those large-
capitalization tech and internet companies that have helped to push the broader market to new heights,
losing some luster as investors fret about stock valuations and the outlook for economic growth in the ninth
year of an economic expansion in the U.S., the second-longest on record.

So far this week, the S&P 500 Growth index SP500G, +0.68%  is down 1.2%, while, the S&P 500 Value
index SP500V, +0.27% is up 0.2% over the same period. To be sure, over the longer-term, growth has been
a steady outperformer, gaining 9.4% year-to-date, compared against action in value names that have left
the S&P 500 value index little changed.

In a Monday note, Morgan Stanley said the outperformance by growth had it poised for an eventual reversal,
as MarketWatch’s Ryan Vlastelica writes.

It remains to be seen if the recent moves represent a sea change for a reemergence for value, which has
been overshadowed by growth plays, or if moves of the past few days are a blip.

Check out: How a tech meltdown could be contained

As McElligott writes: “The question now becomes whether value continue[s] to outperform growth if the tape
turns to an outright ‘risk off’ one over the next few weeks of seasonal weakness, prior to commence of
heavy (tech-led) buyback.”

Michael Antonelli, equity sales trader at R.W Baird & Co., said that although he sees some rotation from one
segment of the market to another under way, he believes that it reflects investors selling winning bets, which
happen to be shares of Facebook, Netflix and other growthy companies and moving into other sectors,
rather than a more pronounced rotation out of growth to value.

“The rotation I think isn’t necessarily growth to value, it’s about selling the winners and that [happens to
involve] growth stocks,” he told MarketWatch.

Only time will tell. However, so-called growth names were bouncing back higher again, with the Nasdaq
rebounding on Tuesday to finish up 0.6% in Tuesday action, helping buoy the broad market.

https://www.marketwatch.com/...e-most-seismic-shift-from-growth-to-value-since-lehman-brothers-says-nomura-2018-07-31?siteid=rss&rss=1[1/8/2018 4:54:44 PM]


The stock market just experienced the most seismic shift from growth to value since Lehman Brothers, says Nomura - MarketWatch

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The stock market just experienced the most seismic shift from growth to value since Lehman Brothers, says Nomura - MarketWatch

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https://www.marketwatch.com/...e-most-seismic-shift-from-growth-to-value-since-lehman-brothers-says-nomura-2018-07-31?siteid=rss&rss=1[1/8/2018 4:54:44 PM]


The stock market just experienced the most seismic shift from growth to value since Lehman Brothers, says Nomura - MarketWatch

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All

quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes

or per exchange requirements.

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