By Steve Goldstein
Critical information for the U.S. trading day
Jerome Powell and crew did nothing to put the brakes on the stock market after suggesting but not committing to a September interest rate cut. That optimism looks set to continue in the early hours of Thursday.
Also rolling of late have been value stocks - the Russell 1000 value index outperformed the Russell 1000 growth index in July by the widest margin since March 2001.
David Hoeft, chief investment officer at Dodge & Cox, points out value stocks usually outperform growth stocks even if that's not been the case of late. On a rolling 10-year basis, there's been only three periods over the past 90 years when value stocks underperformed.
And now, he notes that the Russell 1000 growth index RLG trades at 28.8 times forward earnings vs. 16.1 times for the Russell 1000 value index RLV. That valuation gap leaves value stocks less expensive relative to growth than they have been nearly 95% of the time since 1995. (This gap between growth and value is similar outside the United States too - in the 84th percentile of observations for ex-U.S. stocks.)
For every 5-year period when the valuation spread is wider than the 80th percentile, value stocks have outperformed growth stocks - by 12.1% per year, on average, says Hoeft.
"Valuation isn't prescriptive, especially when you look at short-term time horizons. But if you take a longer-term view of 5 to 10 years, the power of relative valuation to predict performance goes up substantially, so it pays to have a long-term horizon," he says.
Dodge & Cox doesn't eschew technology stocks - both Alphabet (GOOGL) and Microsoft (MSFT) are top 10 holdings of the Dodge & Cox Stock Fund, though at smaller weights than they are in the S&P 500 index. "Just buying low-priced stocks isn't a viable long-term investing strategy if you don't have more holistic insight into intangibles and other sources of value that may not show up directly on the balance sheet," says Hoeft.
Financials, including Charles Schwab (SCHW) and Wells Fargo (WFC), as well as healthcare and industrials are the fund's top sectors.
The markets
U.S. stock index futures (ES00) (NQ00) were pointing higher early Thursday, buoyed by Meta's upbeat results and the afterglow of the Federal Reserve decision on Wednesday. The British pound (GBPUSD) fell vs. the dollar as the Bank of England cut rates for the first time in four years.
Key asset performance Last 5d 1m YTD 1y S&P 500 5522.3 1.75% -0.27% 15.78% 22.35% Nasdaq Composite 17,599.40 1.48% -3.24% 17.24% 25.95% 10-year Treasury 4.06 -18.70 -30.40 17.91 -11.92 Gold 2475.9 4.76% 4.67% 19.50% 25.72% Oil 78.49 0.18% -6.11% 10.04% -3.95% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Meta Platforms (META) shares rallied as the Facebook and Instagram parent beat on both earnings and revenue.
Thursday's earnings lineup includes tech heavyweights Apple (AAPL), Amazon.com (AMZN) and Intel (INTC) after the close.
Earnings previews: Apple | Amazon
Moderna's stock (MRNA) tumbled as the biotech cut its sales guidance for 2024.
Initial jobless claims surged by 14,000 to 249,000 in the week ending July 27, the Labor Department reported. The key ISM manufacturing report is due shortly after the open, as traders gear up for Friday's nonfarm payrolls report.
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Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name NVDA Nvidia TSLA Tesla META Meta Platforms GME GameStop TSM Taiwan Semiconductor Manufacturing AMD Advanced Micro Devices AAPL Apple MSFT Microsoft AMZN Amazon.com AMC AMC Entertainment
The chart
The so-called periphery of Europe is outperforming the core, which is struggling both from tight European Central Bank policy and deeper structural problems, says Dario Perkins, managing director of global macro at TS Lombard. "The periphery's balance-sheet recession is over, and it is the likes of Germany and France that have to adjust to higher interest rates after a decade of easy monetary policy. Even worse, deeper questions have emerged about the core's longer-term term trajectory. Has Germany's reliance on China and Russia left it vulnerable to "deindustrialization"? Is France facing a debt crisis," he asks.
Random reads
This champion table-tennis player, foiled by a broken paddle.
A Texas highway got blocked, by a tank.
A British train was blocked, by a tortoise.
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-Steve Goldstein
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08-01-24 0834ET
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