Wall Street has been super upbeat in recent sessions on vaccine hopes. The key equity gauges have been hovering around record highs. However, there is an emerging trend, which calls for a shift from growth to value equities. This is because value stocks are really cheap and are currently offering a great deal.
Let’s delve a little deeper:
Value Stocks Offering Real Value
Value has been pretty cheap versus momentum and growth.
SPDR Portfolio S&P 500 Value ETF ( SPYV Quick Quote SPYV - Free Report) has a P/E of 17.45X versus Invesco S&P 500 Momentum ETF’s ( P/E of 34.6X and SPMO Quick Quote SPMO - Free Report) SPDR Portfolio S&P 500 Growth ETF’s ( SPYG Quick Quote SPYG - Free Report) P/E of 31.33X.
Since the beginning of September, the S&P 500 value stocks have risen about 9%, while the S&P 500 momentum stocks have gained just 1.6%. The S&P growth stocks have added 3.3% while the S&P 500 Index as a whole is up 5.4%.
Factors Favoring Value Investing Ahead
Since there have been back-to-back releases of upbeat vaccine data (from the likes of Pfizer, Moderna and AstraZeneca) in November, Wall Street has rallied. There have been stimulus hopes as well. On Nov 19, Treasury Secretary Steven Mnuchin “asked the Federal Reserve to shut down five emergency COVID-19 relief facilities and
return $455 billion of unused funds, a move opposed by Fed Chairman Jerome Powell.”
Notably, in March, the Congress had approved $500 billion to enact a variety of emergency lending facilities through the Fed and guarantee loans. Out of this, only a trivial portion of the funds — $25 billion — was used.
Now Mnuchin wants to discuss a stimulus package with Democrats and these unused funds may help them come up with a much-needed relief package.
NRF noted that the retail sector has witnessed a V-shaped recovery as aggregate retail sales have grown both sequentially and year over year each month since June. The sector is expected to log a “strong finish” to 2020 despite COVID-19. Holiday sales will likely gain between 3.6% and 5.2% this year.This compares favorably “with a 4% increase to $729.1 billion last year and an average holiday sales increase of 3.5% over the past five years,” as quoted
on a Yahoo Finance article.
Then, a divided government and a Biden Presidency mean that too many changes on policies (particularly with respect to the most-feared tax hike) are less likely. The policies “will stay more moderate on the economy and taxes,” president of Wells Fargo Investment Institute commented, as quoted on nbcnews.com.
So, expectations of a sooner-than-expected return to normalcy on the back of vaccines, the decent financial health of consumers at the start of holiday season, rising home value, a sturdy stock market and a divided government may boost risk-on sentiments.
If risk-on sentiments manage a continuation in Wall Street, we may end up seeing an uptick in bond yields, which should bode well for value securities. Secondly, value securities that were battered in the peak of the COVID-19 outbreak should now be up for a rally as the worst seems to be over. So, investors will definitely look for a good deal in the equity investing, which lies in value stocks and ETFs.
ETFs in Focus
Below we highlight a few value ETFs that offer lower P/E ratios than SPY (P/E of 24.03x).
Avantis U.S. Small Cap Value ETF ( – P/E 11.34x; Yield 1.19% AVUV Quick Quote AVUV - Free Report) First Trust NASDAQ Global Auto Index Fund ( – P/E 11.72x; Yield 0.89% CARZ Quick Quote CARZ - Free Report) iShares U.S. Regional Banks ETF (– P/E 8.55x; Yield 2.98% IAT Quick Quote IAT - Free Report) First Trust STOXX European Select Dividend Index Fund (– P/E 8.48x; Yield 3.86% FDD Quick Quote FDD - Free Report) iShares Select Dividend ETF (– P/E 10.97x; Yield 3.68% DVY Quick Quote DVY - Free Report) Want key ETF info delivered straight to your inbox?
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