*This post has been amended to provide the correct data for the Value relative to Growth
chart, IWD/IWF. I apologize for the erroneous chart, and will continue to strive to do better. I greatly value your time and appreciate your understanding.
I lived in Hawai'i for a number of years, and one of my favorite runs was a trail that hugged Pearl Harbor. The mid-point of that run provided a view of the graveyard dedicated to retired US Naval ships. It was both a serene and unsettling sight. These large, majestic ships rusting away in solitude.
This is often the image that comes to mind when I refer to Value stocks, but it couldn't be further from the truth.
As I was scrolling through my chartbooks over the weekend, preparing Sunday's Weekly Report, the Value/Growth ratio chart caught my attention. Is Value putting in an 18-year base relative to Growth?
The answer is absolutely not!!!
However, I made a mistake building the ratio chart that I published earlier today. This is what I published earlier along with the commentary:
*It sure looks like it. Even though it appears that Value is poised for meaningful outperformance, I'm not quite ready to ring that bell. However, my caricature of Value stocks has dramatically changed.
Unfortunately, that chart couldn't be any further from the truth. Below is the correct ratio chart of IWD/IWF.
Given the correct data, my "caricature of Value stocks" has not dramatically changed, but I still stand behind the following analysis. The rest of the post remains unchanged.
This change in perspective is only strengthened when viewing the Russell 1000 Value ETF, IWD, on an absolute basis. IWD started the year strong with an all-time weekly closing high. This carries weight when the lagging financial and energy sector behemoths represent a solid portion of its top holdings.
One ship that is heading out to sea is Johnson & Johnson, JNJ. Notice the follow through to the upside in '13, '17, and now '21. From a cyclical standpoint, the upside follow through in JNJ is right on time, and mirrors a similar rhythm seen in the S&P 500 and the Dow Jones Industrial Average.
This is bullish for JNJ, Value, and Stocks as an asset class.
So, will we see a rotation out of Growth and into Value?
It's hard to approach the idea when SMIDS and Micro-caps continue to rip, suggesting an uninterrupted rotation down the cap-scale in the coming days. Also, Growth is still very strong. Most importantly though, I don't believe it's the message the market is sending.
My perspective of the current market environment has deepened with what I view as an incoming tide.
A possible interpretation is that Growth left the harbor a long time ago, while SMIDS and Value were left behind. As the tide began to rise the smaller boats (SMIDS) were lifted first. Now the incoming tide has reached a level that can lift even the largest boats (Value) left in the harbor, and these ships are ready to prove they're sea worthy.
I think the most important information these charts provide is the simple fact we are in an environment that lifts all boats.
Thanks for reading! If you have any questions or comments, please feel free to contact me at ianculley@culleycharts.com
DISCLAIMER: All information and opinions expressed by Culley Charts are strictly that, and should not be construed as investment advice. Market participation comes with inherent risk, and the responsibility of managing this risk lies solely with each individual investor.
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