Financial giant J.P. Morgan kicked off earnings season with a bang after it crushed analyst expectations with a strong showing from its trading operations in the fourth quarter. As 2020 wears on, will value-oriented equities with strong profit growth like JP Morgan be the best option moving forward?
A CNBC report noted that JP Morgan’s “fourth-quarter profit rose 21% to $8.52 billion, or $2.57 a share, compared with the $2.35 estimate of analysts surveyed by Refinitiv. Managed revenue climbed 9% to $29.2 billion, compared with the $27.94 billion estimate. Shares of the bank gained 2.1% in midday trading.”
“Historically, growth stocks have outperformed value stocks when U.S. profit growth has been decelerating,” wrote Wayne Duggan in Forbes. “In periods with accelerating profit growth, value stocks tend to shine. Subramanian says the fourth quarter of 2019 will likely mark the bottom in S&P 500 trailing earnings per share growth and that growth will begin to pick up heading into 2020. Profit growth has been decelerating since the third quarter of 2018, but Bank of America expects it to increase in each quarter of 2020.”
Will a mass movement away from growth into more quality, safe investments be on the way? From a relative value ETF standpoint, this could put value over growth equities and defensive over cyclical equities in play—particularly, the Direxion Russell 1000 Value Over Growth ETF (NYSEArca: RWVG) and the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC).
RWVG seeks investment results that track the Russell 1000® Value/Growth 150/50 Net Spread Index. The fund, under normal circumstances, invests at least 80% of its net assets in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
RWGV measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Value Index (the “Long Component”) and 50% short exposure to the Russell 1000® Growth Index (the “Short Component”). On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value.
RWDC provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors. RWDC tilts towards defensive sectors like health care and consumer staples as shown in the fund’s breakdown. Conversely, it shorts names like the top technology giants that skew towards momentum.
For more relative market trends, visit our Relative Value Channel.