Nearly all the component stocks in the value-heavy Dow Jones Industrial Average rose Thursday, as growth stocks took a back seat.
Stocks rose Thursday, and a strong performance from value names helped lift the Dow Jones Industrial Average to a closing record. Investors are buying up shares of companies in their earnings prime, as economic and corporate fundamentals still look promising.
The Dow rose 318.19 points, or 0.93%, to close at 34,548.53, a new high. The S&P 500 gained 34.03 points, or 0.82% to end at 4,201.62, and the Nasdaq Composite rose 50.42 points, or 0.37%, to close at 13,632.84. The second biggest gainer in the S&P 500 was Kellogg (ticker: K), with shares up 7.1% after the packaged-foods giant beat earnings estimates.
Value stocks are emerging once again as strong performers. The Dow is weighted toward mature companies, so it’s no surprise to see the index outperform, with 27 of the indexes 30 component stocks closing with gains. In general, value has returned to outpacing growth. On Thursday, the Vanguard S&P 500 Value Index ETF (VOOV) rose 0.87%, ahead of its growth counterpart’s 0.71% gain
Value stocks outperformed growth by a wide margin from beginning of November—when makers of Covid-19 vaccines announced they were likely to distribute an aggregate of billions of doses in 2021—through March. Value underperformed growth from the end of March to the end of April.
“This trade took a pause more recently,” Jonathan Golub, chief U.S. equity strategist at Credit Suisse, wrote in a report.
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Now, the value trade has bloomed again, with the value ETF up 2.7% since April 26, and the growth fund down 1.8% since then.
“We are right back into that value versus growth outperforming mode,” said Stephanie Link, chief investment strategist and portfolio manager at Hightower. “The reason is because the economy is recovering.”
Economic data do continue to drive that narrative. Initial jobless claims beat estimates easily, as 498,000 Americans filed for unemployment in the past week, less than the 527,000 filings economists had expected, and less than last week’s result of 590,000. Thursday’s reading is a pandemic-era low.
“Today’s read is another proof-point that we’re one step closer to full economic recovery, sooner than some may have expected,” writes Mike Loewengart, managing director of investment strategy at E*Trade.
Sure, the economic recovery may be well-documented, but value stocks still have a long runway of earnings-growth potential, so long as the economy shakes out as expected. Analysts expect earnings per share for the average company in the value ETF to grow 31% this year and 16% next year. Both of those growth rates are higher than for the fund’s growth counterpart. If investors see the multiple on EPS for value stocks as reasonable, earnings could take those stocks higher, as the shares continue pricing in earnings going forward.
Just keep watching to see if the economic recovery remains on track.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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May 07, 2021 at 04:06AM
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Why Did the Stock Market Rise Today? Value Stocks Are Beating Growth. - Barron's
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