As volatility is still below the long-term average, and we are still in the early stages of the market adjusting to a more normal interest rate regime, the slowing momentum seems likely to continue.
This suggests investors are starting to reduce their exposure to momentum strategies and may want to consider more value-oriented parts of the equity market. One such value-oriented area: integrated oil companies. Despite rallying roughly 5% from the recent lows, large integrated energy companies still trade at a nearly 40% discount to the S&P 500 (based on price-to-book), the largest such discount going back to at least 1995.
Sources: Bloomberg, BlackRock
Russ Koesterich, CFA, is the Global Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog and you can find more of his posts here.