“The change in equity market leadership looks ever more pronounced in terms of the shift from growth to value stocks as investors have discounted ever more rate hikes following last week’s 7.5% year on year US CPI report for January,” said Wood in his weekly note titled ‘Greed & Fear’.
The brokerage said the result is rising Fed tightening estimates. It may raise rates by 50 basis points at its March meeting.
Wood said money markets are discounting about 150 basis points of tightening by the US Fed in the current calendar year while credit spreads have continued to weaken.
Wood’s note says that value stocks have outperformed growth stocks by 16.1% since mid-November.
The US high yield corporate bond yield spread has risen to 3.67% last Friday – the highest level since December 2020 from 2.71% in late December. Wood cited a television interview by voting Federal Open Market Committee member James Bulard who said that the federal funds rate should be 100 basis points higher by July 1.
“This implies a 50 bps move at one of the upcoming Fed meetings and for some sort of balance sheet reduction over and above the run off from maturing securities,” said Wood. He said that tightening is not only about the rate hikes but also balance sheet reduction. Quantitative tightening is in many respects a blunter instrument and a process more likely to spook markets.
“The rotation out of growth stocks will probably not be completed until the leaders of the bull market (i.e. the FANG stocks) succumb in a more decisive fashion,” said Wood.
Earlier this month, Wood had pegged the Sensex at 100,000 level by late 2026. He said there are risks of correction from external factors but they should be used as buying opportunity.
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.