RBC’s Calvasina Says Value Stocks May Be About to Stage Their ‘Last Hurray’


Value or growth? Which of these themes is the best bet in the long run as the economy faces the delta-variant phase of recovery from the worst pandemic in generations?

In short, the answer to this question is complicated, notes Lori Calvasina, head of U.S. equity trading strategy at RBC Capital Markets.

“This is a more complicated equity market than the one we saw in January, which requires more nuance.”

– Lori Calvasina, Head of U.S. Equity Trading Strategy, RBC Capital Markets

Value-driven stocks – stocks of companies considered to be significantly undervalued based on their price relative to metrics like earnings, income, or book value – have stumbled in the past three months after experiencing a renaissance, with investors looking to shift away from growth-oriented investments. who had benefited from lockdowns and mobility restrictions imposed to fight the COVID-19 pandemic.

To verify: What’s next for the stock market‘s “big rotation” as the “growth versus value” battle seeks direction?

Value, as measured by the iShares S&P 500 Value ETF IVE,
fell 0.4% in the past three months, compared to growth stocks, which rose 10%, as measured by the iShares S&P 500 Growth ETF IVW,

Those seeking a recovery in value have been waiting for more than a decade, but it is unclear whether the economic rebound will result in a sustained, longer-term trend change, Calvasina wrote. And that includes the resurgence of the delta variant of the coronavirus that causes COVID-19, which may contribute to lower earnings prospects for some companies.

That said, the RBC analyst said a number of recent challenges complicate matters, but may still give way to good performance for value (or growth) depending on the investor timeline.

“The part of style trading that an investor should be looking at right now really depends on the time horizon, in our opinion,” she said.

“We believe style leadership will remain volatile through 2022 and that we will see several leadership shifts between growth and value by the end of next year,” the analyst wrote.

RBC’s research note highlights uncertainty about the prospects for style investments in the wake of the deadly viral outbreak and erratic rebound by private companies and governments.

In the near term, Calvasina expects another leap in value leadership to be at hand if earnings prospects improve for companies considered to meet the value label, and if flows to Value-indexed funds are also accelerating.

RBC appears to be leaning towards a new race for value, especially if the economic rebound continues.

“Once these clouds have lifted, the stage looks set for a new surge of value leadership in the medium term … It’s a long way to say that a strong economic recovery next year is favorable to further outperformance through the value and cyclical stocks, ”Calvasina wrote.

But don’t get too excited about the long-term outlook for value.

“But while we are very excited about the idea of ​​another big outperforming trade in value, we are also concerned that it may turn out to be value’s last hurray very well,” the researcher wrote.

Calvasina warned the economy was near the peak of economic growth which could come closer to statistical averages in the coming years, as well as rate hikes from the Federal Reserve, which could further cool the market and the economy. .

So what should an investor’s playbook look like in this stretch, with the S&P 500 SPX,
the Dow Jones Industrial Average DJIA,
and the Nasdaq Composite Index COMP,
+ 0.11%
trade near records.

RBC says it “makes sense to reduce value / cyclical exposure and make our S&P 500 sector recommendations more balanced between value / cyclical and growth.”

The institution maintains its overweighting in XLF financials,
and XLE energy,
while lowering its appeal on the XLB materials sector,
from overweighting to market weight.

“At the same time, we are upgrading technology (which we see as the most attractive growth-oriented sector) to overweight relative to market weight,” Calvasina wrote.


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