The Long (Lonely) Road to Value, Part 2
SAN FRANCISCO -- After
Tuesday night's journey, I find myself again on that long and winding road toward value on which some market players are starting to stroll.
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I return not because I "hate" tech stocks or want to see people lose money or underperform. Rather, the subject of value's potential revival continues to come up in conversations I've had with Wall Street types. When all is said and done, the purpose of this column is to reveal to you the "cult of now" on Wall Street (hopefully in an entertaining and irreverent fashion). And the CON on the Street right now is that some, not all, players are thinking seriously about cashing in their tech profits and searching for values.
"The divergence in the market is beyond what we've ever seen in terms of relationships of one sector to another," said Jon Olesky, head of block trading at
Morgan Stanley Dean Witter
, referring to what's working (tech) vs. what ain't (just about everything else). "I don't think tech is necessarily a casualty but the
January effect this year could very well see the market broaden."
By virtue of the tech sector's runaway gains this year, investors who've been active in the sector find themselves heavily exposed to the group, Olesky observed. When the new year/millennium arrives, the immediate issue of capital gains avoidance will be lifted.
"If you're starting
the year with a lot of exposure to tech, do you keep buying?" the trader mused. "Some will, but a lot of investors will be looking for areas that have been way behind, looking for diversity again. Drugs will work, cyclicals can work. Commodities."
A miniversion, perhaps, of this was on display
Wednesday. While tech favorites such as
all declined, recently soporific names in consumer-focused areas such as retailers and drugmakers were on the rise.
Among the gainers were
Procter & Gamble
"There are many investors, many value investors, who sincerely believe the market will begin to reward value and punish growth, particularly large-cap growth," said Hugh Johnson, chief investment officer at
. "What drives that view is tech stocks have done things nobody in their wildest dreams expected. That can't go on forever."
Of course, one day does not a trend make and the
did establish yet another in its seemingly endless string of records.
"You cannot conclude the shift is meaningful on the basis of what we've seen," said Johnson, who remains beholden to (and long) big-cap growth names such as
. "It's compelling, enticing and interesting. There are no signs of value
reviving here, except for
yesterday and the view, it's got to change. But beware: It could be another headfake."
To discern if the shift is meaningful, Johnson said he would look for a prolonged period (about 17 weeks) of outperformance by value, as measured by the
Russell 3000 Value Index
Russell 3000 Growth Index
. The accompanying chart shows the very antithesis of value outperforming growth.
Growth Trumps Value, Again (and Again)
Still, those who remember the
last time cyclicals were in favor -- back in April and May -- recall the group exhibited some tech-like gains in a short period.
Johnson, who concedes "logic" supports the case for value stocks (although logic "hasn't helped much" in recent years), is admittedly "scared to death" of the potential for another shift to value.
"What will I do? Sell Sun to buy
preferred?" he asked. "Are you kidding?"
That's the inside joke on Wall Street, where few dare to contemplate value stocks having the last laugh.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at