Cyclical Momentum Could Keep Supporting Value

Economically sensitive market segments are taking the lead on the first trading day of May.

Economic growth is picking up in most developed countries, and the strong corporate earnings season and positive outlook have also added to the broad market optimism, the Wall Street Journal reports.

With over half of S&P 500 companies reporting results so far, profits are expected to increase 46% in the first quarter, compared to forecasts of 24% growth at the start of April, Reuters reports.

“Earnings so far have been substantially better than projections. People and institutions are feeling positive about the market right now even though we’re close to all-time highs,” Mark Grant, chief global market strategist at B. Riley FBR, told Reuters.

Nevertheless, market observers continue to monitor the ongoing risk of the Covid-19 pandemic in many areas of the world and weigh the potential for higher inflation ahead.

“There is a thin balance between all the positives such as earnings momentum, the reopening, the rollout of vaccines and some limiting factors like [high]valuations and inflation perspectives,” Luc Filip, head of private banking investments at SYZ Private Banking, told the WSJ. “The market will balance between all these positives and negatives, but we believe the positives will outweigh the negatives.”

Bolstering the cyclical play on Monday, the ISM Manufacturing Report on Business PMI revealed a 60.7 reading in April, compared to expectations of 65.0. Demand expanded, but wide-scale shortages of basic materials, higher commodities prices, and supply side difficulties continued to affect growth.

Investors who are interested in a targeted approach to the value segment can look to the American Century STOXX U.S. Quality Value ETF (NYSEArca: VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield, and cash flow yield, along with a sustainable income score based on dividend yield, dividend growth, and dividend coverage.

VALQ All Time Performance

Additionally, the American Century Focused Large Cap Value ETF (FLV) tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets.

FLV All Time Performance

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