Buy the dip for Value-companies still works

The stock markets are again dominated by the idea of weaker growth, which will require an extension of the current stimulus for some more time. New highs in the Nasdaq contrast with the retreat of the Dow Jones and DAX, all repeating last year’s situation when markets bet on “growth” (mainly Tech) stocks. The re-birth of this idea has increased following a series of weak US economic reports and signs that the pace of recovery in Europe and China is fading.

However, there are also differences from what we see now and a year ago, when investors really didn’t see the light at the end of the tunnel, and it was many months before the widespread use of vaccines.

A good reminder that the world is heading towards a reduction in stimulus is the end of the additional jobless payment programmes in the US. Major central banks, for their part, are already officially choosing the moment to start policy normalisation, and it may come sooner than optimists hope.

The outperformance of technology companies risks an abrupt halt as soon as the monetary watchdogs confirm their policy stance towards a withdrawal of support. This makes a buying strategy relevant for downturns in “value” stocks, which retain their global appeal but have been somewhat subdued of late.

The FxPro Analyst Team