Value Stocks Are Back in Vogue, for Now
Could value stocks be back for good? According to the article, one Bank of America poll definitely indicates a positive view, with confidence in value up 21% from October. This could be partially due to the increasingly large gap in P/E ratios between value and growth stocks. As such, value stocks are seemingly cheaper than they’ve been in a while — since 2008, according to the article. Does this data imply that value stocks are “back in vogue” to stay? It’s very difficult to tell. We think it’s prudent to identify attractive companies that can grow and trade at attractive valuations regardless of labels.
https://www.wsj.com/articles/value-stocks-are-back-in-vogue-for-now-11574073000
The Fed Needs Trust, Not Tactics
Author Kevin Warsh makes a very coherent and pertinent point in this WSJ Opinion article. At some point or another on the path towards negative rates, the Fed will run out of conventional tools. Only, the article suggests that the Fed may be overlooking their most effective tool: their soft power. This is what they should be working to reserve, and unlike the regular tools, soft power doesn’t necessarily diminish with use. This is an important reminder that the Fed’s ability to implement its policy depends on the trust it commands with market participants. Any erosion of that trust or a failure to follow up words with action could be detrimental to its efforts to manage monetary policy.
https://www.wsj.com/articles/the-fed-needs-trust-not-tactics-11572303129
Markets are Overbought, but There’s Not Much Worry on Wall Street — Yet
The situation described in this article is an interesting one. Essentially, the contention is that the market is currently chasing momentum into what could very likely be an overvaluation condition. One idea mentioned is that “overbought markets can stay overbought for an extended period”. So, even if this is true, these conditions can persist for some time as “mob mentality” can often confound rational thinking. One significant question is what will happen if the market drops drastically in value? Positioning – guided by an active process – will be key to navigating any potential future issues. Following momentum purely for the sake of momentum is never prudent in our opinion.
https://www.cnbc.com/2019/11/19/markets-are-overbought-but-theres-not-much-worry-on-wall-street.html
New Evidence Points to Mounting Trade Policy Effects on U.S. Business Activity
The greater effects of the trade uncertainty are beginning to become clear. This article provides some insight into its impact on American businesses. One survey asked firms if they reported cutting or postponing capital expenditures due to trade tensions. The result came back twice as much as the same time in 2018, at a total of 12 percent. However, does this data contradict the recent strong growth in the stock market? Potentially. It could likely mean that there’s less “breathing room” for the market if bad news hits.
A Mysterious Marble Bubble in Hong Kong
This article paints the story of a Hong Kong listed marble mining stock called ArtGo Holdings. With net tangible assets as of June valued at $132 M compared to a $5.9 B capitalization, ArtGo Holdings’ recent run seems to defy logic. Could this marble company be an anecdote for the momentum-driven, potentially over-valued current equity markets? Probably not – there seems to be something more nefarious going on here. As we said earlier, strategies that simply follow price momentum without consideration of the underlying fundamentals may find themselves invested in companies that are only shadows of their actual selves. Since this article was published, ArtGo has traded down to HK$0.61 / share.
https://www.wsj.com/articles/a-mysterious-marble-bubble-in-hong-kong-11574246764
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