Shift From Growth To Value Is Now a Blip, But Could Become a Trend

An unusual event occurred on Monday. The Dow Jones Industrial Average was down to start the week for the second week in a row. That has only happened one other time this year, on January 4th - the first trading session of 2021 - and January 11th. It would be one thing if the two events were synchronized to be at the start of a new quarter, but the first Monday of this quarter was April 5, and the Dow was up some 374 points.

Delayed reaction? Has the stimulus money been already spent and now institutions are pulling back? That could be the case, but more to the point may be that so far, first quarter earnings reports have been pretty good, with more than 90% topping estimates after the first full week of reports, spearheaded by bank stocks, which reported knockout quarters, but were aided by unusual accounting gimmicks. Bank of America (BAC), Wells Fargo (WFC), Citigroup (C) and JP Morgan Chase (JPM) each drew down credit loss reserves, which went straight to the bottom line and produced blowouts to the estimates.

It is those kind of earnings reports that elicit skepticism in investors, and skeptical investors are ones who don't buy the stocks of these companies or sell them if they are already stakeholders. Insiders, analysts, and veterans of stock markets have better knowledge of how companies operate and how their books are managed by accountants whose main goal is to increase the price of shares, not necessarily to enhance shareholder value.

That quest for honest results and long term shareholder value may be what's moving stocks presently and what will move them in the near term. There's been a preference towards growth stocks since the Great Financial Crisis of 2008-09 which has become even more pronounced in the past 18 months. Just recently - in the past few months - value stocks have staged a comeback, though it's hardly definitive and too early to call it a trend change. The shift has taken place mostly in the stuttering performance of high-tech large cap stocks, like Google, Amazon, Facebook, and Netflix. These charts offer a glimpse of the longer term trends in play.

Changing sentiment among institutional investors is usually at the heart of market trend shifts, which may be what is on the horizon and exemplified in a couple of down Mondays on the Dow. By no means is there any confirmation of a real shift from a powerful bull market to a growling bear, but it bears watching. Stocks have performed marvelously over the past year, five years, and even since the GFC, now 12 years behind us. Bull markets are wonderful things, full of opportunity, but they all come to an end at some time, and this current bull, built on hope, momentum, steady injections of cash and help from the Federal Reserve, and anything other than fundamentals, has morphed into an enormous bubble.

We all know that it's going to pop and end badly, but just how badly and when are still matters of great speculation.

As has been offered as advice for decades, "the trend is your friend," but this recent shift has not been at all sizable, especially in big name stocks. If there's an ill wind blowing and investors begin to take profits, who can blame them? Returns have been magnificent. But, as the late Kenny Rogers informed so brilliantly in his song, "The Gambler", you've got to know when to hold 'em, know when to fold 'em, know when to walk away, know when to run.

AT THE CLOSE, MONDAY, APRIL 19, 2021:
Dow: 34,077.63, -123.04 (-0.36%)
NASDAQ: 13,914.77, -137.58 (-0.98%)
S&P 500: 4,163.26, -22.21 (-0.53%)
NYSE: 16,107.56, -78.74 (-0.49%)