Talking Points – March 2021

March 17, 2021 – Money Has Been Rushing Into Value ETFs

It seems like everything happens faster in the investment world these days. Market corrections happen fast and recover quickly, recessions are brief and sentiment shifts quickly. Now, we are seeing market rotation of major asset classes make rapid changes.

Growth stocks have dominated for a decade and as a result money has poured into growth ETFs. However, as we see below, the relative performance of value has recently taken charge and the flow into value ETFs has gone nearly straight up.

Source: Strategas Research

This should not be too surprising, as increasing interest rates indicate investors expect a rapidly improving economy. With a faster growing environment, investors can now invest in cyclical stocks that will benefit from the upswing and trade at substantially better valuations than growth.

The aggressive inflows could mean the value trade needs a pause here, as it has grown very popular. However, if the economy performs as anticipated, we would expect the flows into value are not done yet.

March 3, 2021 – What Might Strong GDP Mean For Stocks?

We were all reminded in 2020 that the stock market and the economy do not necessarily move on the same time schedule. Now, in 2021 it is likely we are to see 2-3 quarters of some of the strongest GDP in many years. Could stocks have already discounted that? Today, we look at periods in the 1950’s and early 1980’s that are increasingly being used as comparisons to the current era.

As we see, much higher than normal economic growth did not deter stocks from having strong years despite corrections along the way.

Source: Strategas Research

It is certainly not unusual to have corrections of 10-15%. In fact, it would be unusual to have a year that did not have such a correction. Despite that when/if we get one in 2021, does not mean stocks cannot follow the economy higher.

Source: Greg Towner, CFA, CMT