Spring is all about change. It’s lovely, inspiring and one of the best times of year to step back and observe the emergence of new things. In the global equity market, one area showing green shoots is the characteristic of Value. Over the last six months, Momentum, as a stock characteristic, has dominated the contextual concentration of the market. That dominance is fading.
In its place we are beginning to see a broader accompaniment from lower-valued stocks with improving earnings. Overall, this is good news for active investors as the opportunities outside of Large Capitalization, Technology and Price Momentum allow for wider application of contrarian ideas.
After one of the most dominant momentum-led starts to the year ever, March has seen Technology leadership (as represented by the S&P Technology Select Sector Index) plateau, with new areas of leadership knocking on the door.
Energy, as represented by the S&P Energy Select Sector Index, is a key indicator of the changing contextual concentration. After underperforming Technology by more than 5% in the first two months of the year, Energy is now outperforming year-to-date, driven by a positive inflection in earning revisions for 2024 through 2026. We believe this is against a backdrop of skepticism of Value stocks generally and Energy stocks more narrowly.
This combination of fundamental improvement, emerging price momentum and investor skepticism is worth watching as macro expectations and portfolio positioning are reevaluated heading into the second quarter. Equity markets are still attractive to us – but it may be worth adopting a fresh perspective toward Value for Spring.
Important Disclosures & Definitions
S&P Energy Select Sector Index: seeks to provide an effective representation of the energy sector of the S&P 500 Index which includes companies in the oil, gas and consumable fuel, energy equipment and services industries.
S&P Technology Select Sector Index: seeks to provide an effective representation of the technology sector of the S&P 500 Index which includes companies from technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments and components.
MSCI USA Momentum Index: captures large and mid-cap US securities with high price momentum, while maintaining reasonably high trading liquidity, investment capacity and moderate index turnover.
MSCI USA Value Index: captures large and mid-cap US securities exhibiting overall value style characteristics using three variables: book value to price, 12-month forward earnings to price and dividend yield.
One may not invest directly in an index.
AAI000654 04/02/2025