Moreover, the current underperformance in value stock ETFs may be affected by investment sentiment. Specifically, investors are typically more aggressive during periods of heightened volatility and would chase popular growth stocks. Since growth stocks show high multiples, investors may expect that the companies will sustain a high growth rate. In contrast, traders may feel that firms with low multiples would continue to experience tepid growth.
JPMorgan Chase recently argued that investors shouldn’t tilt toward value stocks as companies have not reached a point where they can sustain the recovery. Weighing on the value outlook, the Federal Reserve may still hike interest rates in December, and energy companies, commodity producers and other firms dependent on emerging markets are vulnerable to losses if rates rise. Additionally, there is no guarantee that a “reflation trade” benefiting value stocks will develop, especially with the consumer price index only rising 1.3% last month year-over-year and overall inflation still stubbornly below the Fed’s 2% target. [2 Reasons To Be Skeptical Of Value ETFs Surge]
Large-cap U.S. stocks have also been outperforming as global volatility kept investors to safer equity plays, or prominent and more stable brands.
For more information on the markets, visit our current affairs category.
Max Chen contributed to this article.