Breaking News
Investing Pro 0
New Year’s SALE: Up to 40% OFF InvestingPro+ CLAIM OFFER

The Week Ahead: Underlying Rotation from Value to Growth on Recession Fears

ph.investing.com/analysis/the-week-ahead-underlying-rotation-from-value-to-growth-on-recession-fears-120412
The Week Ahead: Underlying Rotation from Value to Growth on Recession Fears
By Pinchas Cohen/Investing.com   |  Jul 17, 2022 19:18
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
CL
-2.01%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BTC/USD
+0.23%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BTC/USD
+0.24%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DXY
+0.08%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BTC/EUR
+0.56%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USO
-2.02%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • In the last month, technology stocks fell relative to value stocks at half the rate of the year's first five months
  • Yields signal further equity downside
  • Steepening inverted yield signal recession
  • Dollar due a correction within an uptrend
  • Gold could fall much lower, as could oil. while BTC remains aimless

Increasing signs of recessions may be reflected in the undercurrent shifting from value to growth stocks.

This year, I have been monitoring and demonstrating a sector rotation between growth and value stocks.

Here is one number that demonstrates how economically sensitive stocks outperformed technology shares. The Nasdaq 100 has lost 29.6% this year, while the Dow Jones Industrial Average declined by 15.7%, slightly over half that amount.

However, I identified a stark reversal in June.

Here is a table with both indexes' performance going back each month cumulatively.

NDX VS Dow

  • 6M - 29.5% VS -15.3% (NDX falls 49.2% more)
  • 5M - 23% VS -12.4% (46% more)
  • 4M -19.2% VS -9.2% (47.9% more)
  • 3M -22.5% VS -11.2% (50.2%)
  • 2M - 10.6% VS -6.7% (46.8% more)
  • 1M -9% VS -6.7% (25.6% more)

Note that the NDX lost about double that of the Dow in each accumulative month. However, in the last month, that comparative loss halved to just a quarter.

What does this mean? While a single month can always be an anomaly, it's noteworthy that all the previous months this year were wholly consistent. This anomaly occurs when fears of a recession escalate, with more voices joining the chorus.

Value stocks began outperforming when rates began rising, as they are sensitive to the economic cycle. However, if a recession is what we're looking at, I expect investors to shift from value to growth.

As I've demonstrated, so far it's just one month, but if I'm right, we'll see a more significant, apparent shift back to the known, big names as stocks fall harder.

We'll better gauge the market when companies release results next week. Specifically, look to see how badly inflation impacted growth. This week, Goldman Sachs (NYSE:GS), Johnson & Johnson (NYSE:JNJ), and Tesla (NASDAQ:TSLA) will release results.

So far, the cyclical sectors hitched a ride on the soaring energy prices. Still, energy and other commodities - also sensitive to the economy - have been falling in recent weeks because of the same concern: recession will end demand.

Meanwhile, bulls could rationalize increasing risk after Citigroup Inc (NYSE:C) beat expectations, pushing the S&P 500 banks index (SPXBK) 5.75% higher.

Bonds

Treasuries fell for the week, the third time in four weeks, as investors hoard safe haven assets.

UST Performance Chart
UST Performance Chart

If yields continue to fall, they will complete a top, suggesting investors will buy Treasuries as they sell equities.

Also, and more importantly, the inverted yield steepened, with the 2-year rising, as the 10-year falling.

10year vs. 2year Treasuries Spread
10year vs. 2year Treasuries Spread

This pattern demonstrates that people are willing to be committed for longer and get paid less for more safety, and it is a leading indicator of a recession.

The Dollar

The dollar climbed for the third straight week and the sixth out of seven weeks, to its highest level since October 2002.

DXY Perfromance chart
DXY Perfromance chart

The dollar developed a long upper shadow. It may not be long enough to be a Shooting Star, but it demonstrates bearish resistance. After such a steep advance, the Greenback is ripe for a correction.

Gold

Gold Futures has dropped for the fifth week amid dollar strength and rising interest rates, offsetting the highest inflation over four decades.

Gold Performance Chart
Gold Performance Chart

The yellow metal has been on the brink of a double top since its Aug 2020 all-time high.

Bitcoin

Bitcoin climbed for the fifth day in a row.

BTC Performance Chart
BTC Performance Chart

it's been a month, and BTC has not provided a downside breakout to what could have been a bearish flag. At this point, I will disregard this congestion and revert back to my overall, long-term bearish call, starting from January.

Oil

Oil rose for the last three days but closed lower for the second straight week and the fourth out of five weeks.

The market is working itself out between recession fears, lower demand, and tighter supplies. Based on the chart, I'm betting that the recession story will win, at least for now.

WTI Performance Chart
WTI Performance Chart

Oil confirmed the Rising Flag's bearishness and completed an even larger Triangle. Therefore, I expect oil to continue lower, along its Falling Channel, for now, and it could fall into the $60s.

Disclosure: I have no positions in any instruments mentioned.

***

Interested in finding your next great idea?

InvestingPro+ gives you the chance to screen through 135K+ stocks to find the fastest growing or most undervalued stocks in the world, with professional data, tools, and insights. Learn More »

The Week Ahead: Underlying Rotation from Value to Growth on Recession Fears
 

Related Articles

Alfonso Peccatiello
Recession or Soft Landing? By Alfonso Peccatiello - Jan 24, 2023

The soft landing crew is increasingly taking over. No, the bond market’s base case is not a recession - it’s immaculate disinflation. Getting this call right is crucial for your...

The Week Ahead: Underlying Rotation from Value to Growth on Recession Fears

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email