All posts by Luke Palmer

The Herd is Running into Consumer Staples, Value Stocks

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A Structural Shift in Equity Markets

Since the financial crisis a decade ago, S&P 500 growth stocks have massively outperformed S&P value and defensive stocks.  Earlier this month something happened that took investors by surprise.

The outperformance of the SGX (S&P 500 Growth Index) vs. the SVX (S&P 500 Value Index) was right near the highest ratio ever recorded. The last time growth outperformed value to this extent was during the dot-com bubble, almost twenty years ago. Then it happened.

S&P Value vs. S&P Growth RatioBefore stocks began to sell-off last week, the ratio of S&P 500 growth vs. value nearly touched its all-time high set during the dot-com bubble. We are confident this structural market shift will continue and are bullish on the value (defensive stocks, consumer staples) vs. growth rotation.

Defensive Names Laying a Beating on Growth

With a plunge in global equities, this ratio has begun a powerful reversal.  We continue to see repeated signs of value and defensive outperformance, we believe this a structural shift and expect a continuation of capital inflows.

On October 24, the S&P 500 was beaten down -3.03%. Yet the QQQ, which is filled with high growth technology stocks, plummeted significantly further and closed off nearly 5%. Equities across the globe saw investors flee. Where did they go?  Capital had to flow somewhere, today the XLP consumer staples ETF closed higher by 42 basis points and was at one point 1.8% higher during intraday trading.

Consumer Staples Select Sector SPDR XLP  ETF vs. SPY S&P 500 ETFA significant divergence began between the S&P 500 and staple equities this week. Capital has to flow somewhere.

We believe a comeback in defensive stocks is just beginning and this is an area we have been overweight in positioning.

In mid-September our Larry McDonald gave the keynote speech at asset management conference in Toronto, speaking about this dynamic. Make sure to review our Toronto Presentation slides, here.

Pick up our latest report here:

Don’t miss our next trade idea. Get on the Bear Traps Report Today, click here
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