S&P 500 hits record, value stocks drive growth

Yahoo Finance’s Myles Udland, Julie Hyman, and Brian Sozzi discuss the S&P 500 hitting record highs, and market trajectory.

Video Transcript

MYLES UDLAND: We have the stock market closing at a record high on Friday, uh, and I know that there's a couple of data points that you were looking at, um, this morning, is-- is thinking about the setup for the week on the styles that have predominated within the market.

Because I know we're all still benchmarked to the Fang, and the growth world, and the stay-at-home trades, but it has been a different picture underneath the surface, uh, for the markets really since last November.

JULIE HYMAN: Yeah, uh, a different picture from what it had been certainly during the sort of height of the pandemic. So if you take a look at the YFi Interactive this morning, I'm looking at the Russell 1,000 growth index versus the Russell 1,000 value index.

And obviously, this is a lot broader than just the so-called Fang stocks and then the-- the-- um, the return to normal stocks, if you will, the airlines and travel stocks of the world. This is sort of bigger than that and encompasses what's traditionally defined as higher growth stocks and value stocks.

But here's a one-year chart, and what I really want to point out is the trajectory that we have seen, right? So all of last year, we saw those growth stocks really rocket up, is what we were seeing, and that's as we had-- you know, obviously, a lot of people stuck at home. We had what was going on with Amazon being extraordinarily popular, uh, during that period of time, and the like, and all of this reliance on tech stocks.

And then, really, you had sort of a break around the February-March time period. I'm trying to-- there we go. There's my drawing tool. As it-- as it--

MYLES UDLAND: Fancy, very fancy.

[LAUGHTER]

JULIE HYMAN: Wow, a little bit of a delay on my drawing, so it ended up being much more of-- of a scribble. We'll have to look at that. I need a little practice on this. And then, you had value kind of taking over.

But what I wanted to point out is sort of where we are currently, which is all the way to the right side of your screen here, which, um, shows that we are seeing growth have a little bit of a resurgence and value come down a little bit, perhaps that trade getting a little bit played out in terms of the, um, back to normal reopening trade, uh, and people doing a little bit more buying.

So I guess the point I'm trying to make, um, my scribbling aside, is that it's interesting that this latest push to a record by the S&P 500 has come not at the expense of or despite weakness in some of those Fang stocks. It's that they've been doing well, right?

We-- if you look at-- you know, there you have Apple, the year to date not looking so great, but it's-- it's been seeing a little bit of a perk up recently. Facebook, we've been watching, as well, uh, and we've been watching Amazon. Look at that. Google is trading, um, pretty much at a record. So um, these stocks have been coming back.

BRIAN SOZZI: Yeah, I'll just add two here. You know, I got a good note, uh, guys, this morning from, uh, the folks over at Goldman Sachs, noting that mutual funds are overrated value, uh, to the largest degree, uh, that they have been over the past year, past eight years. That's how far Goldman goes back in terms of its data.

Hedge funds remain tilted to growth, but that tilt has fallen recently, I guess to your point, Julie, maybe some folks nibbling at growth on the pullback amid these rate-- uh, rate fear hikes and inflation.

You know, Goldman also noting here that they see growth starting to come back in favor perhaps to a larger degree in the second half of this year, probably towards, uh, the last couple of months of this year and early 2022.

I would assume, Myles, that would be because, uh, you know, we would have the-- uh, inflation would be transitory. That would be priced in. We would know what would be coming in terms of interest rates, and maybe investors start to go back to those high growth names. Top of mind, of course, is always those Fang and-- and big cap, uh, beta stocks.

MYLES UDLAND: Yeah, and-- and really, I think if-- if you look at the Fang names and the, um, the difference in the performance between them, uh-- uh, really, I mean, we can-- you can throw whatever wrapper you want on it-- uh, value versus growth, tech versus old economy-- um, but it-- it also kind of gets back to the simplest breakdown at any one time in the markets, which is always, um, you know, secular versus cyclical growth.

We are in the beginning of an economic upturn, an economic cycle. Cyclical-type names have really outperformed. You look at Alphabet, and you look at Facebook, they are levered to the growth of the overall economy because they are selling advertisements, which are going to be more in demand when businesses believe that there is more demand for their goods and services and thus want to sell those into a growing and more robust market.

The secular growth thesis around big tech over the last five years is that, well, if the economy isn't growing cyclically, then we need to find businesses that are going to gain market share against the whole pool of other businesses, even if the overall economy isn't growing all that fast.

And so um, Julie, I think that that's, uh, an interesting kind of-- maybe a return to that secular theme which, again, has predominated for the last 10 years.

And through market history, these periods of cyclical outperformance do tend to be fleeting because, of course, the economic cycle-- oh, well, it cycles. It goes up, and it goes down. And so you need to try to find those secular winners that you can count on, um, you know, when-- when things aren't necessarily moving up into the right for everybody.

JULIE HYMAN: Well, and then you have on the non-equity side, the curious case of the 10-year, right? Which kind of feeds into the idea that maybe people are already-- are they already looking past this upcycle? I don't know.

Um, we-- as we talked about last week with Brian Cheung, there are some other sort of factors at play here, but it is-- sort of remains somewhat startling to me or-- or dissonant to me, if you will, to see, you know, hot inflation, hot growth numbers at the same time that you've got a 10-year yield below 1.5%. Which, I guess, Myles, sort of brings us to the next topic that we're talking about, which is the data this week and the-- and the Fed meeting.

MYLES UDLAND: Yeah, I mean, well, look at the-- the thing for the 10-year, as it's been explained to me a couple of different ways, exactly how you back into what the yield could be. Maybe the simplest version is, here's what, you know, the market expects future GDP growth to be.

Um, and then another thing is, you know, what will the average Fed funds rate be over the next 10 years? That is what the 10-year yield should be at any one point in time. So over the next decade, you could then imply the market believes the average Fed funds rate will be 1.5% How we'd get there, um, and if that even is, you know, what comes to pass, uh, we'll see.

Certainly wasn't true over the last decade or so, but um, you know, couple of different ways to-- to maybe decompose that. Jared Blikre will tell us about, uh, the real yield versus, um, you know, the nominal yield and what breakevens are implying, blah, blah, blah, all that kind of good stuff.