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PR Newswire
21-04-2014, 09:42 AM
PUBLISHED APRIL 21, 2014
WALL STREET INSIGHT
Analysts point to new phase of bull market
Analysts warn some stocks will take a lot longer to recover from April sell-off
BYROB CURRANPRINT |EMAIL THIS ARTICLE
BT 20140421 RCCOL21 1052783
Searching for yield: Traders sold highfliers such as Google in the wake of their earnings and rotated into companies that reported steadier - if less spectacular - growth, such as General Electric and Johnson & Johnson. - PHOTO: BLOOMBERG
THE broad Standard & Poor's 500 had its biggest gain of the year last week and almost returned to a record high, but analysts warn that some stocks will take a lot longer to recover from the sell-off in early April.
The bull market has moved into a different phase, according to some strategists. Initial excitement over the recovery from a deep recession has faded, reflected in a fall of some fast-growing company stocks. Some strategists say that we are now entering the later stages of the economic growth cycle, when safer, more defensive stocks such as utilities and old-line pharmaceuticals take the lead.
The "growth" stocks of the Nasdaq Composite - particularly small technology and biotechnology stocks - led the bull market since it began in 2009. At its low of 3,999 early last week, the Nasdaq Composite was down 8.2 per cent from its March peak, almost at the 10 per cent loss level considered a correction. And for those investors and day traders who buy popular "momentum" stocks, the first two weeks of this month were a full-fledged bear market.
Intercept Pharmaceuticals, a biotech company that's developed a promising treatment for liver disease, lost nearly half of its value between March 19 and April 16. Makers of 3-D printers, which some people argue have the power to revolutionise manufacturing, have lost similar increments. Many stocks in the niche of social networking, arguably the most significant commercial trend of the 21st century, also plunged.
For this small, but influential group of momentum stocks, comparisons with the pop of the Internet bubble in 2000 are apt. As in that year, the sudden rout was prompted by a change in sentiment rather than anything related to the "real economy".
Some strategists say that the selling began in biotech and technology exchange-traded funds, the popular alternatives to mutual funds that many investors use to follow market trends. An initial trickle then became a flood.
Contrast the rout on the Nasdaq to the performance of the more diversified S&P 500, which was never more than 4 per cent from its record high, and could test that record again next week. Some slower growing, dividend-paying "value" stocks such as nuclear power generator Exelon actually rose during the April rout.
Two gauges from index compiler Russell Investments provide the sharpest illustration of the changes below the surface of the stock market. The Russell 1000 tracks the 1,000 largest US-listed stocks. The growth sub-index of the Russell 1000 was more or less flat for this year at the close on Friday, while the value sub-index was up nearly 3 per cent. That's in marked contrast to the last five years, when the growth sub-indices either led or were neck and neck with the value sub-index. Strategists at one brokerage said that the sudden ascendance of value stocks looks like an inflection point.
"Since (Federal Reserve chairwoman) Janet Yellen's comment on March 19, in only two of the 17 subsequent trading sessions has growth significantly led value," said analysts at brokerage Morgan Stanley, in a research note early last week. "We determined that rotations this strong, while infrequent, are typically followed by periods where value outperforms."
The market's message has changed from "things can only get better" to "things could be worse".
Traders had braced for disappointment in quarterly earnings after a bitter winter disrupted work and play for many Americans. Quarterly earnings for the S&P 500 are expected to grow a modest 1.7 per cent on aggregate, according to data from Thomson Reuters. That still counts as a positive surprise. Again, however, traders sold highfliers such as Google in the wake of their earnings and rotated into companies that reported steadier - if less spectacular - growth, such as General Electric and Johnson & Johnson.
This week, the pattern could be repeated as cyclical companies such as AK Steel and Facebook will likely face higher hurdles as they try to impress investors than defensive companies such as power producer Entergy.
Investors in economically sensitive stocks will have to hope for a strong showing in March durable-goods orders and weekly unemployment claims.
Still, the broad market's rapid recovery from the rout bodes well for the year. The fact that buyers came back to the S&P 500 around the 1,800 mark and the Nasdaq around the 4,000 mark may establish a "floor" at these levels, according to technical traders.
Plus, the original inspirations for the bull market - improving economic and corporate-growth prospects, loose central-bank policy, and relatively cheap stocks - are almost all still in place, said Oliver Pursche, president of money manager Gary Goldberg Financial Services.
If there is a shadow still hanging over the stock market, it probably looks a lot like Russian President Vladimir Putin. Two months after his initial move in Ukraine, Mr Putin is still keeping the world guessing over his endgame. "The market clearly has got a floor underneath it as a result of low interest rates and ongoing economic (growth)," said Mr Pursche. "Any kind of break through the floor, a 7 per cent, 8 per cent correction would most likely come from some kind of geopolitical shock."
WALL STREET INSIGHT
Analysts point to new phase of bull market
Analysts warn some stocks will take a lot longer to recover from April sell-off
BYROB CURRANPRINT |EMAIL THIS ARTICLE
BT 20140421 RCCOL21 1052783
Searching for yield: Traders sold highfliers such as Google in the wake of their earnings and rotated into companies that reported steadier - if less spectacular - growth, such as General Electric and Johnson & Johnson. - PHOTO: BLOOMBERG
THE broad Standard & Poor's 500 had its biggest gain of the year last week and almost returned to a record high, but analysts warn that some stocks will take a lot longer to recover from the sell-off in early April.
The bull market has moved into a different phase, according to some strategists. Initial excitement over the recovery from a deep recession has faded, reflected in a fall of some fast-growing company stocks. Some strategists say that we are now entering the later stages of the economic growth cycle, when safer, more defensive stocks such as utilities and old-line pharmaceuticals take the lead.
The "growth" stocks of the Nasdaq Composite - particularly small technology and biotechnology stocks - led the bull market since it began in 2009. At its low of 3,999 early last week, the Nasdaq Composite was down 8.2 per cent from its March peak, almost at the 10 per cent loss level considered a correction. And for those investors and day traders who buy popular "momentum" stocks, the first two weeks of this month were a full-fledged bear market.
Intercept Pharmaceuticals, a biotech company that's developed a promising treatment for liver disease, lost nearly half of its value between March 19 and April 16. Makers of 3-D printers, which some people argue have the power to revolutionise manufacturing, have lost similar increments. Many stocks in the niche of social networking, arguably the most significant commercial trend of the 21st century, also plunged.
For this small, but influential group of momentum stocks, comparisons with the pop of the Internet bubble in 2000 are apt. As in that year, the sudden rout was prompted by a change in sentiment rather than anything related to the "real economy".
Some strategists say that the selling began in biotech and technology exchange-traded funds, the popular alternatives to mutual funds that many investors use to follow market trends. An initial trickle then became a flood.
Contrast the rout on the Nasdaq to the performance of the more diversified S&P 500, which was never more than 4 per cent from its record high, and could test that record again next week. Some slower growing, dividend-paying "value" stocks such as nuclear power generator Exelon actually rose during the April rout.
Two gauges from index compiler Russell Investments provide the sharpest illustration of the changes below the surface of the stock market. The Russell 1000 tracks the 1,000 largest US-listed stocks. The growth sub-index of the Russell 1000 was more or less flat for this year at the close on Friday, while the value sub-index was up nearly 3 per cent. That's in marked contrast to the last five years, when the growth sub-indices either led or were neck and neck with the value sub-index. Strategists at one brokerage said that the sudden ascendance of value stocks looks like an inflection point.
"Since (Federal Reserve chairwoman) Janet Yellen's comment on March 19, in only two of the 17 subsequent trading sessions has growth significantly led value," said analysts at brokerage Morgan Stanley, in a research note early last week. "We determined that rotations this strong, while infrequent, are typically followed by periods where value outperforms."
The market's message has changed from "things can only get better" to "things could be worse".
Traders had braced for disappointment in quarterly earnings after a bitter winter disrupted work and play for many Americans. Quarterly earnings for the S&P 500 are expected to grow a modest 1.7 per cent on aggregate, according to data from Thomson Reuters. That still counts as a positive surprise. Again, however, traders sold highfliers such as Google in the wake of their earnings and rotated into companies that reported steadier - if less spectacular - growth, such as General Electric and Johnson & Johnson.
This week, the pattern could be repeated as cyclical companies such as AK Steel and Facebook will likely face higher hurdles as they try to impress investors than defensive companies such as power producer Entergy.
Investors in economically sensitive stocks will have to hope for a strong showing in March durable-goods orders and weekly unemployment claims.
Still, the broad market's rapid recovery from the rout bodes well for the year. The fact that buyers came back to the S&P 500 around the 1,800 mark and the Nasdaq around the 4,000 mark may establish a "floor" at these levels, according to technical traders.
Plus, the original inspirations for the bull market - improving economic and corporate-growth prospects, loose central-bank policy, and relatively cheap stocks - are almost all still in place, said Oliver Pursche, president of money manager Gary Goldberg Financial Services.
If there is a shadow still hanging over the stock market, it probably looks a lot like Russian President Vladimir Putin. Two months after his initial move in Ukraine, Mr Putin is still keeping the world guessing over his endgame. "The market clearly has got a floor underneath it as a result of low interest rates and ongoing economic (growth)," said Mr Pursche. "Any kind of break through the floor, a 7 per cent, 8 per cent correction would most likely come from some kind of geopolitical shock."
