Growth stocks are turning into value stocks

Stocks reversed early losses, closing in the green, as investors bought stocks on sale in the wake of last Friday’s rout. Long maturity Treasury yields hit fresh highs yesterday as investors braced for tomorrow’s announcement by the Federal Reserve.

When life was simple. When I was younger, I used to have an annual conversation with my late father. On or around New Years, each year, we would take inventory together. It was principally me doing the talking, but he would listen attentively. We would look back on the year that passed and try to gain our bearings for the year ahead. I was ever grateful, as I am still today, about the progress of my children. Check. We would recount events, some good and some bad. Check. Then I can recall that just about every year I would say something to the affect that “I have never worked so hard as in this past year,” and my father would typically respond with something wise, like “life gets more complex as you advance, it is a sign of progress.”

I find myself looking back quite a bit lately as I assess the current market and economic situation. I attempt to find similar events in the past and see if I can glean something about the present. This past 2 years has thrown us one “unprecedented” event after another. Typically, markets have a way of collecting themselves and reacting (mostly) appropriately and then moving forward. Historically, the market is able to comfortably deal with 2 to 3 unknowns at a time, but currently it is attempting to digest far more. Inflation is seemingly out of control, the threat of nuclear war has reemerged for the first time since the 1980s, there is a threat of pan-European war, bond yields are on the rise, stocks are struggling to make gains, corporate earnings growth is slowing, energy is back on top, value stocks are back in vogue, the Fed is likely to raise rates at a pace not seen in decades, the same Fed is poised to begin selling bonds in the open market, Japan (the largest holder of US sovereign debt) is selling US Treasuries pushing yields higher, the probability of a recession is growing…shall I go on? Lots of items on the list are now on the radar of investors and their paths forward are largely unknown. In other words, there are far more questions than answers these days, which is the source of the market’s recent, sustained volatility. Looking at that large list of unknowns, it is hard to tell which way they will all end up, but the good news is that one by one, as always, the unknowns will become known. The answers may not be what we would necessarily like, but good news or bad, the market always behaves best when there are less unknowns. While it would certainly be nice to get all those answers in the short term, it is not likely that we will have them. What that means is that volatility may be here to stay for now. But we are progressing, though we may not feel it. A little more than 6 months ago, the Fed did not even acknowledge that inflation was a problem and now it is acutely focused on it. Though the most recent read on GDP growth came in negative for the first quarter, consumer spending continues to be strong notwithstanding rising prices. Corporate earnings heretofore have been healthy, despite their slow-down in growth. As my father and I would wrap up our discussion, I would inevitably realize that tumult of the prior year was not so bad after all, and I learned over time to embrace the complexity. Sure, it was uncomfortable and inconvenient at times, but it was necessary to advance.

WHAT’S SHAKIN’

The Estee Lauder Cos Inc (EL) shares are lower by -9.83% in the pre-market after it announced that it missed Revenue estimates by -1.67% but beat on EPS by +13.94%. The company cut its full-year EPS guidance far below analyst estimates, citing headwinds such as the COVID restrictions in China and the war in Ukraine. Dividend yield: 0.92%. Potential average analyst target upside: +29.2%.

Howmet Aerospace Inc (HWM) is trading higher by +2.33% in the pre-market after it announced that it beat EPS and Revenue estimates by +5.5% and +1.35% respectively. The aerospace and defense manufacturer also raised its full-year EPS guidance. Dividend yield: 0.23%. Potential average analyst target upside: +20.4%.

ALSO, THIS MORNING: DuPont du Nemours (DD), Eaton (ETN), Zebra Technologies (ZBRA), Zimmer Biomet (ZBH), Pfizer (PFE), AGCO (AGCO), Westlake (WLK), Molson Coors (TAP), and KKR (KKR) all beat on EPS and Revenues.

YESTERDAY’S MARKETS

Stocks rose yesterday after investors swooped in to buy the dip. The S&P500 rose by +0.57%, the Dow Jones Industrial Average climbed by +0.26%, the Nasdaq Composite Index traded higher by +1.63%, the Russell 2000 Index advanced by +1.01%, and the S&P500 ESG Index was higher by +0.49%. Bonds traded lower and 10-year Treasury Note yields gained +5 basis points to 2.98%. Cryptos lost -0.53% and Bitcoin slipped by -0.02%.

NXT UP

• Factory Orders (March) are expected to have grown by +1.2% after declining by -0.5% in the prior month.
• JOLTS Job Openings (March) may come in at 1.12 million compared to last month’s 1.1266 million.
• After the close earnings:  ONEOK, Caesars Entertainment, Prudential, Public Storage, Herbalife, Skyworks, Revolve Group, Hannon Armstrong, Match Group, Lyft, AMD, Airbnb, Starbucks, and Akamai.