• Thu. Dec 1st, 2022



Value Stocks Lead Correction: What Wall Street’s Saying

Stocks fell considerably Monday in an ongoing correction led by not by growth tech stocks, but rather by growing concerns over the speed of the economic recovery.

The S&P 500 fell 1.16%, with the tech-heavy Nasdaq down just 0.13%. The price of crude oil fell 3.5% to $39 a barrel and the 10-year Treasury yield fell to 0.67%. Yields fall when prices rise.

Growth tech stocks have received a considerable rerating of valuation, as the Nasdaq 100 is now down more than 12% since Sept. 2. Tech stocks had run up to stratospheric valuations this year on accelerated demand for at-home services, which are also high-growth areas. Now, many are wondering whether there has been a massive pull-forward of demand, which makes later years far less growth-like than the next few years are.

But the selling in tech stocks abated by midday, with the Nasdaq 100 finishing up 0.4% for the day.

It was cyclical value that accounted for the drop in the S&P 500 to a level roughly in-line with where it was to start the year. The Vanguard S&P 500 Value ETF  (VOOV) – Get Report, home to large cap defensive and cycle names, fell 2.56%. This indicates investors are worried about the speed of the economic recovery. Growth tech stocks have secular growth trends less correlated to economic output. Value stocks are largely tethered to the economic cycle. Some cyclical sectors trade at rich valuations, others at cheaper ones, though valuations are largely somewhere close to in-line with levels appropriate for the low interest rate environment.

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