The year 2019 has been upbeat for Wall Street. Cues of a phase-one trade deal between the United States and China as well as global policy easing has made this possible. Tech and biotech sectors have played a big role in driving stocks higher. The key equity gauges hit all-time highs on several occasions.
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 offer solid value at the current level.
Let’s delve a little deeper:
Value Stocks Offering Real Value
Per Bank of America, “Value has never been this cheap vs. Momentum.” The only time in history that value stocks turned this cheap was in 2003 and 2008, when the group outperformed momentum stocks by 22 and 69 percentage points, respectively, over the subsequent 12 months, the bank added, as quoted on CNBC.
“Since the beginning of September, U.S. value stocks have risen about 10%, while U.S. momentum stocks have fallen more than 10%, according to Fraser-Jenkins’ data (read: Value ETFs Trumping Momentum ETFs: Here's Why).
Factors Favoring Value Investing Ahead
Since the United States and China agreed to a phase one trade deal in October, Wall Street has rallied. The progress seemed to have mired a bit as it remains unclear when the duo will strike the deal and to what extent. Trump’s signing of Hong Kong human rights made matters worse.
Moreover, after a recent rally, Morgan Stanley’s Garner believes that the U.S.-China partial trade deal is now priced in. Mixed U.S. economic data points might fail to cheer up investors fully in the near term. Consumer confidence has fallen for the fourth month in a row in November despite three Fed rate cuts this year.
The upcoming year will remain uncertain thanks to the pending outcome of Brexit, U.S. presidential election and further developments on the U.S.-China trade relation. But then easy money policies and a better-than-expected earnings season call for a stock rally. 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 SPDR S&P 500 ETF Trust (SPY - Free Report) (P/E of 18.15x).
Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) – P/E 9.70x
iShares Edge MSCI International Value Factor ETF (IVLU - Free Report) – P/E 10.01x
First Trust Nasdaq Bank ETF (FTXO - Free Report) – P/E 10.50x
AAM S&P Developed Markets High Dividend Value ETF (DMDV - Free Report) – P/E 10.94x
Invesco S&P MidCap 400 Pure Value ETF (RFV - Free Report) – P/E 11.46x
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