Value stocks and related exchange traded funds managed to push higher on Friday as the broad market rally lost momentum following a two-day surge.
Investors are beginning to prep for the upcoming earnings season, and some are already muting expectations.
“There is a real risk that companies are going to miss earnings expectations despite there being strong demand for their products and services,” Russ Mould, investment director at AJ Bell, told Reuters. “The cost pressures are so clear that widespread downgrades to profit margins seem inevitable in the coming months.”
Gains in economically sensitive sectors like energy, financials, and industrials helped limit losses on the Dow Jones Industrial Average and the benchmark S&P 500 while mega-cap technology names dragged on the major indices.
The S&P 500 Value Index was also about 0.7% higher for the week, outperforming its tech-heavy growth counterpart and moving to break a three-week losing streak.
“It’s not unusual for Friday’s action after two consecutive strong moves to the upside, to see modest pullback and repositioning,” Art Hogan, chief market strategist at National Securities, told Reuters.
“Concerns about Washington DC has moved to the forefront – will we be able to keep the government running, will we raise the debt ceiling and get the infrastructure bill passed, will there be new taxes – that’s likely going to dominate investors’ psychology coming into the next week,” Hogan added.
ETF investors 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.
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 value measures, like earnings and the book value of assets.
Lastly, the Avantis U.S. Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in U.S. small-cap companies. It is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.
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