Markets stocks

Value(less)

It was only “right” that the week should end with another day of outperformance for big-cap tech over small-caps.

As discussed here Thursday in “Top-Heavy, ‘Trillionaire’ Tech Rally Draws Jeers“, the pro-cyclical rotation seen earlier this month is proving to be yet another head fake. Friday just cemented that assessment.

For Value, it was insult to injury. Growth outperformed by some 400 bps on the week depending on which index you cared you to consult. One of the more dramatic manifestations is shown in the figure (below). The Russell 1000 Value was poised for its second-worst week versus its Growth counterpart in nearly two decades.

Alphabet, which said Friday it weighed buying a small stake in TikTok and hasn’t ruled out participating in a bidding war for the besieged video app, hit an all-time high.

Ahead of the split, Apple had its best day since last month’s post-earnings surge. The company, which this week blew past the $2 trillion valuation milestone, has logged gains in 11 of the past 12 weeks.

The stock still has “a lot of gas left in the tank”, Wedbush’s Dan Ives wrote, in a Friday note. Somehow, I don’t doubt it.

Meanwhile, SocGen’s Andrew Lapthorne notes that while concentration of the top five or 10 stocks in an index “is not unusual”, when they become correlated, “not owning them creates significant tracking error”.

That, in turn, makes them “difficult not to own”, Lapthorne rather dryly observes, tacitly nodding to the perpetual motion machine dynamic described by Howard Marks more than three years ago.

Finally, BofA’s Michael Hartnett offered the chart below in a note out Thursday evening. I’ll present it without further comment.


 

6 comments on “Value(less)

  1. runamok says:

    That Michael Hartnett chart is amazing. When it does flip, it could big time for years.

    • The ‘for years’ is an important point for me.

    • Anonymous says:

      A guarateed future cash flow stream should not be valued differently based on sector or industry. Of course, no equity cash flow stream can be guaranteed. But looking at AAPL future cash flows and those of utes, PG, JPM, etc and discounting them back shows the expected growth in some names and the risk in others. Maybe today’s tech is not IBM of the past or MSFT of the 00s but you may be paying a lot for that bet.

      “Gas in the tank” is such an old tech term and might suggest AAPL is not on the cutting end, tech innovation side of “the battery is charged with cheap renewable energy”.

      Sorry, I just don’t get AAPL here………………

  2. MMcCann says:

    Where is the chart that shows/goes back to 1932?

  3. mfn says:

    Maybe health care and big tech are the future of the U.S. economy and (fossil fuel) energy companies and their backers in the financial sector are the past?

  4. joesailboat says:

    “ difficult not to own “ that and your comment about insult to injury sums things up. Third quarter statements may prove to be disturbing for a good many retirees.

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