Winners and Sinners

Mike Zaccardi

LAST WEEK SAW additional gains for value stocks, while shares of once highflying growth companies continued to struggle. Meanwhile, foreign markets again rallied. Vanguard FTSE All-World ex-U.S. ETF (symbol: VEU) rose more than 1% last week, even as Vanguard Total Stock Market ETF (VTI) slipped 0.5%.

Let’s further unpack these trends.

The Nasdaq Composite has endured its worst start to a year since 2009. At the same time, blue chip stocks and some of last year’s losers are suddenly in favor. U.S. high-dividend companies, such as those owned by Vanguard High Dividend Yield ETF (VYM), are up big. Venture overseas for yield, and you’ll see even larger gains. Vanguard International High Dividend Yield ETF (VYMI) is up almost 5% in 2022.

A heat map illustrates the story. Shares of some emerging market companies—such as Alibaba and Taiwan Semiconductor—are red hot, higher by more than 10% in the past two weeks. Meanwhile, energy stocks are in the black on the heels of rebounding oil prices. Brazil’s Petroleo Brasileiro, China’s PetroChina and France’s TotalEnergies are green across the board—each up by about 15% this year.

On Friday morning, the market digested the monthly University of Michigan Consumer Sentiment survey. That report showed buying conditions for vehicles were at their poorest level in the survey’s history. New and used car prices are through the roof. A key reason: Semiconductor chips are extremely hard to come by, thanks to the pandemic.

Moreover, last Wednesday’s Consumer Price Index report showed used car prices up a whopping 37% from a year ago, while the sticker price on the average new vehicle is 12% higher. How are large-cap value stocks like Ford and Toyota doing amid this car crisis? Ford’s shares are up 21% in 2022, while Toyota has climbed 14%.

As value-oriented international markets, stable dividend stocks, oil and gas companies, and traditional automakers rally, shares of innovative tech companies are down big. Zoom, Teladoc and Robinhood are all more than 70% below their pandemic peaks. It’s almost like the 2000-02 dot-com crash all over again.

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Roboticus Aquarius
Roboticus Aquarius
10 months ago

I’ve been watching value stocks for quite a while. The first signs of value strength seemed (to me) to manifest in mid 2019, but it was erratic. Then the Pandemic hit. That created an interesting dichotomy over the next two years where growth stocks went nuts every time we had another Covid wave, but in periods of optimism we saw value stocks surge, and some real but limited outperformance. The market seems to have moved past covid, but also seems to be waiting for higher overnight rates to be confirmed before resuming the march to value. Even so, value is doing well vs growth at this point. No surprise that a lot of people are talking value now, when 2-3 years ago it was all about growth stocks.

Humble Reader
Humble Reader
10 months ago

Two weeks is a trend? Out of curiosity I looked at the data for the three ETFs noted as having positive 2022 YTD returns. 
For the U.S. domestic VYM the cumulative 10-year return, reinvesting dividends and capital gains, is only three-quarters of a typical S&P 500 index fund return.
The international VEU cumulative 5-year and 10-year returns are less half of an S&P 500 index fund and it has had negative returns in 4 of the 13 years since exiting the Great recession.
The international VYMI cumulative 5-year return is a third of the S&P 500 index fund and it has had negative returns in 2 years of its brief 5 year history.
As a buy and hold fund investor I evaluate investments largely by net expense and cumulative 5 and 10 year returns. Annualized return history provides volatility data and a feeling for how a fund will perform during the bad times.
It would be a wonderful thing to increase my diversification by adding more international investments. But the long-term mediocre (compared to U.S.) returns and volatility risk of the international markets just keep getting in my way. Perhaps if the current 2-week trend turns into a 5-year trend I will have the data I need. Let you know in five years.

Jonathan Clements
Jonathan Clements
10 months ago
Reply to  Humble Reader

If you wait for a five-year trend before diversifying into value and international, there’s a significant risk you’ll be buying after significant gains have already occurred. Market trends often run for a decade or more and then reverse. International stocks sparkled in the 1970s, 1980s and 2000s, while U.S. stocks were the winners in the 1990s and 2010s. Similar long trends have occurred for growth and value stocks, and for small and large. I wouldn’t assume the next 10 years will look like the last 10 years.

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