The Shift Toward Value Continues

By Russ Koesterich, Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist.

Signs of improving U.S. jobs growth sent U.S. stocks to a record high last Friday, but by the end of the day, the gains had faded, with some high-profile biotechnology and social media companies leading the downward charge.

Friday’s market performance confirms a trend I first wrote about recently: Last year’s momentum trade, which mainly benefited growth names, is reversing. In other words, we are starting to see investor sentiment shift toward value names from growth stocks.

Investors are moving out of many areas of the market that performed well last year. In particular, the Internet, social media and biotechnology industries are experiencing some notable weakness.

Why the change in sentiment? Valuations for these industries are starting to appear stretched (this is particularly true for the biotech and social media industries) with a lot of optimism discounted into the prices. In addition, investors are starting to seek better opportunities elsewhere—specifically in some of the more value-oriented areas of the market.

So what does this mean for investors going forward? In the current environment, I believe that investors should emphasize stocks, both inside and outside of the United States, that offer good relative value.

In particular, I like U.S. mega-cap stocks–particularly in the energy and non-Internet technology sectors–as well as international equities. In my opinion, many international markets offer better value than can be found in U.S. stocks. Among developed markets, I continue to like European and Japanese stocks.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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