Value-oriented stocks are having one of their strongest days of the year relative to their growth counterparts, continuing a mini-revival in value shares that began last week.
The iShares Russell 1000 Value exchange-traded fund (ticker: IWD) closed up $1.09, or 0.9%, to $128.27 in Monday afternoon trading, while the iShares Russell 1000 Growth ETF (IWF) was down $1.26 at $161.27, an 0.8% decline. The gap, at 1.7 percentage points, is wide in historical terms.
The Russell 1000 index contains the largest companies in the U.S. stock market, and the two ETFs hold the value and growth stocks within the index.
Energy and financial stocks—two mainstays of value investors—are rallying while technology and health-care stocks, longtime favorites of growth buyers, are lower. Software stocks were hit particularly hard.
Electric utilities and real-estate investment trusts—two investments that are sensitive to interest rates—fell amid a selloff in the bond market. The price of the 30-year Treasury bond fell by more than 1.5%, lifting the debt’s yield to 2.10%.
Value investors have been suffering through another poor year relative to growth enthusiasts. May and August were two of the worst months ever for value stocks, according to Empirical Research Partners. Although value has outperformed growth in the past week, the iShares Russell 1000 Value ETF is behind the iShares Russell 1000 Growth by more than 7 percentage points year to date. The growth ETF has gained almost 24%.
Financial stocks are rallying. The Financial Select Sector SPDR (XLF) was up 1.5% to $27.86 and the Energy Select Sector SPDR (XLE) had gained 2%, to $60.21. The Technology Select Sector SPDR was off 0.7%, to $80.89.
Among leading financial stocks, JPMorgan Chase (JPM) was up $2.79, or 2.5%, to $115.40 and Bank of America (BAC) rose 90 cents, or 3.2%, to $28.63. Chevron (CVX) was up $1.13, or 1%, to $119.10 and Exxon Mobil (XOM) had gained 56 cents, or 0.8%, to $71.49.
More speculative energy-exploration stocks were up sharply. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) gained 5.6% to $23.46.
Software stocks—among the hottest and most richly priced group of growth stocks—were getting hammered, extending a recent drop. Slack Technologies (WORK) was down 9%, or $2.46 to $24.92, after hitting its lowest price since its market debut in June.
Many software stocks were up over 50% this year prior to the recent losses. Investors may be concerned about the risk of owning such expensive stocks.
Most have little or no earnings based on generally accepted accounting principles, and many are valued at more than 10 times annual sales. The S&P 500 trades for about two times sales. Barron’s warned in July—when software stocks were peaking—that the sector could be in a bubble.
There have been many false dawns for value investors during a 10-year period of growth ascendancy. But with value stocks historically very cheap relative to growth stocks, embattled value investors are hoping their day has come. Barron’s wrote about the potential value revival this past weekend.
Write to Andrew Bary at [email protected]