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Charting the Market: Where Are There Value Opportunities?

By:

Head of SPDR Americas Research

  • Global equity markets are less than 1% away from their all-time highs
  • With markets elevated, broad-based valuations are also stretched. This has brought on more frequent “is this a bubble?” discussions
  • Matt takes a look at the metrics and uncovers potential value opportunities

Even with the slight stumble in late January, global equity markets are still less than 1% away from their all-time highs.With markets elevated, broad-based valuations are also stretched – most notably in the US. This has brought on more frequent “is this a bubble?” discussions, evidenced by Google Trends search ranking for the words “stock market bubble” recently hitting 1002 and a news headline scan for the same words also registering highs not seen since January 2018. Back then, the S&P 500 had spent 16 consecutive days over an RSI of 75 – the longest stretch ever – and hit a record RSI of 86.69.3

Setting aside the bubble talk, as market prognosticators have called five out of the last two bubbles, the stretched valuations are leading investors to wonder where there may be “value” right now.

Here, we analyze various metrics to uncover potential value opportunities – important right now, as cyclical, more value-oriented segments may have stronger relative performance than the broader market as the global economy recovers.

Dissecting global value opportunities

The weak performance of value strategies over the past decade encourages the “who cares” where there is value argument. As shown below, whether it is mega, large, mid, small, or foreign, value has spent most of the 2010s underperforming a “growth” led market. With performance like this, it is fair to say that value could have given an aspirin the headache of its life in the last decade. Yet, if there wasn’t interim pain, then there wouldn’t be a long-term premium. And one could argue that this dour performance has pushed the marginal buyer out, leading to the value premium being noticeably inexpensive as the 2020s began.4

five year annualized relative yield performance

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Footnotes

1 Bloomberg Finance L.P. as of 2/3/2021 per the MSCI ACWI Index
2 This is the highest level it can reach
3 Not to say this was a bubble then, but very frothy and overheated technical market.
4 Based on a four factor composite of price-to-book, price-to-earnings, price-to-sales, and price-to-next-years-earnings for the S&P 500 Value Index, S&P 500 Index, and S&P 500 Growth Index since 1995 to 2020, the current valuation discount of S&P 500 Value to S&P 500 is in the bottom 17th percentile and versus S&P 500 Growth it is in the bottom 7th percentile based on Bloomberg Finance L.P. data and SPDR Americas Research calculations as of February 4, 2021
5 Source: FactSet, as of January 31, 2021. Characteristics are as of the date indicated, are subject to change, and should not be relied upon as current thereafter. EPS growth estimates are based on Consensus Analyst Estimates compiled by FactSet.
6 Source: FactSet, as of January 31, 2021. Characteristics are as of the date indicated, are subject to change, and should not be relied upon as current thereafter. EPS growth estimates are based on Consensus Analyst Estimates compiled by FactSet.

Originally Posted on February 5, 2021 – Charting the Market: Where are there value opportunities?

Disclosures

The views expressed in this material are the views of SPDR Americas Research Team and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

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All the index performance results referred to are provided exclusively for comparison purposes only. It should not be assumed that they represent the performance of any particular investment.

Passively managed funds hold a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.

Actively managed funds do not seek to replicate the performance of a specified index. The strategy is actively managed and may underperform its benchmarks. An investment in the strategy is not appropriate for all investors and is not intended to be a complete investment program. Investing in the strategy involves risks, including the risk that investors may receive little or no return on the investment or that investors may lose part or even all of the investment.

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Volatility management techniques may result in periods of loss and underperformance may limit the Fund’s ability to participate in rising markets and may increase transaction costs.

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Value stocks can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

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