Wall Street's leading stocks reveal investor caution

  • By April Joyner,
  • Reuters
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Wall Street stocks have climbed to record highs as worries over U.S.-China trade relations and the Federal Reserve’s monetary policy have receded, but cautious investors have been sticking with technology shares and some defensive stocks over value stocks and more speculative plays such as IPOs.

That’s unlikely to change in the near term even if stocks keep rising, strategists say, as uncertain economic conditions lead investors to shares of companies with solid earnings and growth prospects.

Boost your retirement income

Here are nine strategies to help you make the most of every income source.

As concerns over a slowdown in global economic growth have loomed, technology shares and defensive shares in the real estate, utilities and consumer staples sectors have alternated in leading U.S. stocks higher. Technology companies are considered capable of earnings growth even if the economy falls into a recession, while defensive shares offer steady dividends.

The S&P 500 (.SPX) has gained 22% this year in large part because of the 36% gain in technology shares, which have an outsized impact on the benchmark index. The S&P 500 tech sector includes the two largest U.S. companies by market capitalization, Apple Inc. (AAPL) and Microsoft Corp. (MSFT).

Apple shares have surged 62% year-to-date, Microsoft 41%. Overall, tech stocks account for roughly a third of the benchmark index’s gains.

Real estate shares have risen 26%, the second-largest percentage gain among S&P sectors, but they have a miniscule weighting on the index.

Shares of less fundamentally sound companies, by contrast, have faltered. The small-cap Russell 2000 index (.RUT), a third of whose constituents have no net income, has underperformed the S&P 500 in 2019. And shares of several companies that have gone public this year have fallen sharply since their debuts, including Lyft Inc. (LYFT), Uber Technologies Inc. (UBER) and Slack Technologies Inc. (WORK).

Unprofitable U.S. companies holding IPOs this year have had a median stock return of 0%, according to a Reuters analysis.

Investors are “not just going to buy anything indiscriminately,” said David Joy, chief market strategist at Ameriprise in Boston. “We want to see some earnings or some prospects for earnings.”

Recently, trading patterns among the S&P 500 have begun to shift. Defensive shares underperformed in October as the United States and China appeared on the verge of signing a limited trade agreement and the Federal Reserve cut interest rates for a third time this year. At the same time, value shares, so named because of their relatively low price-to-earnings ratios, have perked up. Over the past two months, the Russell 1000 Value index (.RLV) has outperformed the Russell 1000 Growth index (.RLG).

The improved performance of value shares, concentrated in economically sensitive sectors such as financials, has prompted suggestions of a rotation in leadership among U.S. stocks. But even though conditions could support a breakout of such shares, some investors say they are reluctant to make bold bets until economic data confirms a rebound. On Friday, the Institute for Supply Management’s U.S. manufacturing index showed factory activity contracting for a third straight month in October.

“We’re not positioning ourselves for value to all of a sudden come back,” said Mark Stoeckle, chief executive officer of Adams Funds in Baltimore. “I’d rather have the data tell me it’s time to be in value.”

Indeed, the S&P 500 technology index has made new highs in the past week and throughout the year, while the S&P 500 financial index (.GSPF) remains below its 2018 peak.

“We’re looking for signs that tech is going to roll over,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta. “At this point, it’s too early to say that.”

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

For more news you can use to help guide your financial life, visit our Insights page.


© Reuters 2019. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

You May Also Like...

Making a positive mental transition to retirement

Many retirees experience a loss of structure in their lives once they lose the social network that came with their job. Here are steps you can take to help lay the transition groundwork for a fulfilling retirement.

The market outlook for 2020

A number of factors are expected to send markets higher by year end, but what about 2020? Here's what a number of market watchers think is coming for the new year.

10 ways to vet a charity

Finding a charity whose mission matches your goals isn't always easy. Following these ten steps could help you identify the right charity before you donate.