If the stock market is rotating away from techs, then what stocks are outperforming? In a word, value plays. Value-stock indexes are beating growth indexes by big margins, by the most since the dot-com bubble.
The S&P 500 Value Index is outperforming the S&P 500 Growth Index by 7.64 percentage points this month, according to Dow Jones Market Data. That would make it the largest monthly outperformance since December 2000.
More than 23% of the S&P 500 Value Index is in financials, which lead the stock market with a gain of more than 16% year to date. Warren Buffett's Berkshire Hathaway, a classic value play, is the largest component.
Health care and industrials are the second- and third-largest sectors in the index, and both have gone up about 10% in 2024. Technology is only 8% of the index, which has helped it absorb losses in that sector.
Meantime, the Russell 1000 and Russell 3000 value indexes are outperforming their growth counterparts by more than 8% in July — the most since February 2001.
Should investors be concerned about another tech meltdown? Tech megacaps are already in poor shape, with Nvidia, Microsoft, Meta Platforms and Alphabet trading below their 50-day moving averages.
That's one big reason IBD's recommended exposure level has dropped to 40%-60%. But opportunities have emerged in financials, housing and other areas.
10:18 a.m. ET
Analysts Don't Buy Into Small Caps
Wells Fargo analysts are skeptical of small caps as they outperform the stock market.
Since July 10, the Russell 2000 index has outperformed the S&P 500, racing about 9.5% in that span vs. a 2.6% decline for the S&P 500. Looking at prior periods when small caps beat the S&P, such as the 2016 election and the 2018 tariff rally, Wells Fargo Investment Institute sees small caps fading.
In each past scenario, relative returns turned negative in the six-month and 12-month periods following the small-cap rally's peak. Small caps went from winners to losers of 6% to 16%.
"In our view, the recent rally is likely unsustainable as the fundamental support for small caps is lacking," Wells Fargo said in its report. "Over 40% of companies in the Russell 2000 Index are non-earners, and the group lacks the balance-sheet flexibility and pricing power that would likely benefit large caps in the economic slowdown we are expecting. We suggest investors to not chase recent small-cap gains."
Stock Market: F5, Varonis Break Out
F5 is trying to break out of a cup base as shares surged more than 10% in early stock market trading after a strong earnings report.
Shares of the cloud networking technology company are trading near the 196.35 buy point of a cup base. They are on pace for largest increase since June 7, 2016, when F5 soared 12.6%.
F5 late Monday reported June-quarter sales and earnings that topped expectations. The company also raised its outlook. JPMorgan Chase, Needham and several other analysts raised their price targets on F5.
Varonis Systems broke out of a cup-with-handle base in heavy volume at the stock market open. Shares were up more than 14% and above a 51.74 buy point.
The company, which owns a 96 Composite Rating, reported second-quarter earnings and sales that came in well above analyst estimates, according to FactSet. Barclays, Piper Sandler and other firms raised their price targets on the data management and security provider.
