America’s Dow Jones Industrials set a new intra-day record high on Monday while the NASDAQ Composite slid into correction territory, just over 10% below its mid-February closing peak, to once more raise the issue of whether investors are now preferring ‘value’ stocks – which potentially offer rapid growth today – over ‘growth’ names, which are usually seen as offering increases in profits and cash flows well into the future, says Russ Mould, AJ Bell Investment Director.
“Investors thus seem to be switching from jam tomorrow, at high valuations for growth stocks, to jam today at lower ones for cyclical stocks, in the view that the combination of vaccination programmes, fiscal stimulus and monetary stimulus will prompt a strong economic recovery.
“This can be seen by dividing the value of the Dow Jones Industrials by that of the NASDAQ. If the line rises the Dow is outperforming and the line falls if the Dow is underperforming. On a relative basis, the Dow has now matched the NASDAQ since the benchmark US ten-year Treasury yield bottomed at 0.51% on 4 August 2020 – even though tech stocks such as Apple, Facebook, Alphabet, Tesla and pandemic winners such as Netflix continue to grab the headlines.
“The Dow does have its new-world winners, such as Apple, Salesforce.com and Microsoft, but it is generally stocked with more cyclical names, such as Caterpillar, Home Depot, Wal-Mart, 3M and a host of financials.”