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Why the Biden administration’s first 100 days will likely see a rally in value stocks

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Normally I would be skeptical of the recent declarations that value stocks are finally turning the corner in their long-running battle over growth. That’s because I’ve lost track of how many similar pronouncements have been made over the last 15 years, each of which turned out to fail.

So I initially didn’t get too excited when value stocks outperformed growth stocks by a huge margin earlier this week. The S&P 500 Value ETF
IVE,
-1.27%

  over two trading sessions on Nov. 9 and 10 gained 5.4%, versus a 1.7% loss for the S&P 500 Growth ETF
IVW,
-0.80%

 .

Upon analyzing the historical record, I am now willing to at least entertain the notion that value has indeed turned the corner. For starters, it’s noteworthy that this two-day 7.1 percentage point value-over-growth spread is bigger than for any other two-day period since 1994, which is how far back the S&P 500 Value and S&P 500 Growth indices extend.

In addition, there’s a good theoretical reason to believe that value’s recent good fortune is more than just a flash in the pan. According to a study that appeared earlier this year in the Journal of Banking and Finance, value stocks on average produce some of their strongest relative returns in the 100 days after a new president takes office.

The study is entitled “Political uncertainty, market anomalies and Presidential honeymoons.” Its authors are Kam Fong Chan of the University of Western Australia, Philip Gray of Monash University, Stephen Gray of the University of Queensland, and Angel Zhong of RMIT University.

The authors focused on the relative performances of value and growth stocks from 1933 to 2015. They found that, on average, value stocks far outperformed growth stocks in the first 100 days following a president’s inauguration. The value-over-growth spread averaged 3.51% per month during these so-called “honeymoon” periods, versus 0.27% per month during all non-honeymoon periods.

This difference is “highly significant” according to traditional standards of statistical significance, the researchers report.


Investors already realize the extraordinary uncertainty that will greet President Biden on Jan. 20.

What accounts for this result? The researchers hypothesize that it traces to the “uncertainty surrounding policy direction” that is greatest right after a president takes office. This uncertainty disproportionately impacts value stocks, the researchers argue, since they are already out of favor and in- or close to financial distress. To induce investors to incur the greater risk of investing in such stocks during these periods, they therefore need to hold out the prospect of higher returns.

One confirmation of the researchers’ hypothesis came when they segregated the honeymoons that followed a new president taking office from those that followed a president’s re-election. There would be far more uncertainty in the first case than the second, and sure enough, that’s when value beat growth by the greatest amount.

You might question this research’s relevance, since this honeymoon period won’t start until Jan. 20, more than two months from now. But I have a suspicion that the stock market isn’t waiting, since investors already realize the extraordinary uncertainty that will greet President Joe Biden on Jan. 20.

This is what happened after Donald Trump was elected in 2016,. Value’s greatest margin over growth came in November and December of that year rather than after inauguration in January 2017.

There are no guarantees, of course. But long-suffering value investors can take comfort from the record margin by which value beat growth in recent days, and from the existence of a plausible theoretical rationale for why value should continue to beat growth for the next several months.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: How to play the value-stock boomlet — while it lasts

Plus: 2 days doesn’t make a trend, say strategists. Here’s what they’re saying about tech stocks and the rotation into value



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As the market nosedived last year, my older brother advised me to sell. I lost $80,000. How can I ever forgive him?

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Dear Quentin,

This time last year, when the market was nosediving, my older brother advised me to get out of the market, and go to cash to conserve my assets. It was only going to get worse, he proclaimed, and he had 40 years’ experience in the market.

Granted, it was an ugly drop. Following his lead, I said hello to a $80,000 loss, while thinking I’d say goodbye to an even worse disaster. That same downturn soon ended, and the market recovered. It took me months to get back into the market.

If I’d ignored his advice and stayed the course, I’d be way ahead instead of way behind. To this day, I’m behind $55,000, so I’ve recovered some. I don’t feel good about being led down this path. Perhaps I have no one to blame for listening but myself.

Any thoughts on this matter would be greatly appreciated.

The Brother

Dear Brother,

Accountability is everything. You can start forgiving your brother by forgiving yourself. But in order to do that, you must repeat after me: “I, and I alone, was responsible for buying these stocks while the going was good, and I, and I alone, am responsible for selling them.”

Intent also matters. Your brother, whether he has four years or 40 years of experience, did not mean you harm. He may have been feeling concerned himself, and projected that worry onto you. You didn’t say whether he sold stocks too. Regardless, rinse and repeat the above quote.


‘It was a hard lesson. But the fun part is figuring out what it is you have learned.’


— The Moneyist

You are responsible for making money, you are responsible for saving money, and you are responsible for investing money. When you ask for advice and give 100% of your decision-making over to that person, you are making a choice. You are also handing over your power.

It was a hard lesson. But the fun part is figuring out what it is you have learned. 1. Don’t sell your stock during tumultuous times based on fear. 2. Don’t give up your own agency. 3. Don’t torture yourself by counting every rise and fall. That is what got you into this situation in the first place.

The situation, by the way, is temporary — so you can now choose to suffer, or you can take an action and choose NOT to suffer. Close your laptop, call your brother and ask how he is doing, stick with it for the long haul this time, and take a walk and get in some steps.

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

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I married the ‘life of the party’ who was a regular at Royal Ascot. But all he does is take his financial troubles out on me

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I don’t know where to start. So I will start at the beginning. I met a man at a friend’s wedding a few years ago. He was charming in that British-man-in-America sort of way (Hugh Grant has a lot to answer for), he told jokes (perhaps too many jokes, in retrospect) and made me laugh (at first). He was the life of the party, with a wide circle of friends and everyone seemed to love him.

He also had a very lavish, conspicuous lifestyle: a house upstate where he entertained his friends at weekends, he sailed in the summer, and he was regularly photographed at charity events on both sides of the Atlantic. He posted photos of himself on Facebook at Royal Ascot for several years (before the coronavirus pandemic). He seemed like the most popular guy in the world.


‘The first six months were good, the next three years? There are three topics: My husband, his business and his family.’

He was a generous man an d financially stable, or so I thought. Of course, his success and ease with which he seemed to navigate the world made him attractive to me, but I fell in love with him, and when he proposed, I said yes. The first six months were good, the next three years? Let’s just say there are three topics of conversation: My husband, his failing business and his terrible family. The pandemic hurt the already shaky family firm.

As his financial troubles worsened over the course of our marriage, he became short-tempered. I attributed that to the stress he was under. He actually shared this business with two brothers, so his expense account and “champagne lifestyle” was being funded by his family as much as actual profit. In fact, it soon became clear that he was neither the brain or the brawn of the operation.

Our life has descended into stress and instability. His flashes of anger appear with increasing frequency, as do his allegations that I am a gold-digger, which conveniently cast me as a villain deserving of no respect. For the record, I always work and pay my own way. (Six months ago, he pushed me and I fell backwards over the arm of a sofa. Fortunately, it broke my fall.)

I have no idea who this man is. His friends, as much as one could call them that, deserted him a couple so years ago when the expense account ran out. He ridicules me, holds the fact that I wanted a child over my head (I’m 38), and last year he did not hide his disgust at the birthday gift I got him (a photo album of our courtship, in addition to a dinner and silver cufflinks) in my face.

I’m exhausted. There is only one person in the world who matters, and it’s him. Some days he’s up and friendly, usually when we are on Zoom calls with family and (my) friends, but when that camera is off you better watch out. I’m living with a stranger. I have no clue what will happen next. His birthday is coming up in March, and I am dreading choosing a gift for him after last year.

What would you get him for this birthday? Any other suggestions about what I should do?

Trapped & Exhausted

Dear Trapped & Exhausted,

A ticket to London, England. One way.

But your situation is quite different from my hypothetical one. I wills say this: I’m not sure it’s possible to know who you married if he doesn’t know who he is himself. Hugh Grant has actually come into his own playing villains and rogues (Jeremy Thorpe in “A Very British Scandal” on Netflix
NFLX,
+2.19%
,
Phoenix Buchanan in “Paddington 2” and Jonathan Fraser in “The Undoing” on HBO). In each role, he was playing a man with many faces, but was not who others believed him to be in either role, and I’m not sure Thorpe, a real-life British politician, Fraser, a fictional murderer, and Buchanan, a cartoon villain of many disguises, knew who they were either.

I suspect the same is true for your husband. Is he an amusing socialite and risk-taking business mogul by day and a bumbling, ne’er-do-well, Black Sheep of his family by night? If he doesn’t know who he is and where his own values lie — and value lies — I can’t blame you for not knowing. I do not believe you are a “gold digger,” but I do believe that you bought into whatever it was he was selling to the world: a debonair, bicontinental bon vivant who had not a care in the world and who got by on chutzpah, smarts (let’s assume), likability and talent for navigating “high society.” That’s natural. We tend to believe who people say they are, unless we have reason to doubt them.

For every Jeffrey Epstein or Robert Maxwell, there are a thousand Phoenix Buchanans. Everything and nothing in life is about money. A child is not a bargaining chip. A marriage certificate or property deed is not a life sentence. A birthday present is not a time bomb. Presenting oneself as a success on social media is not real life. It is the 21st Century version of Buchanan’s act at the village fête. When domestic violence or emotional abuse rear their head, the fear persists. When will it happen again? Today? Tonight? Tomorrow? Any moment now? Close your eyes. Imagine your dream life. And choose that.

The door is waiting for you, if you choose to walk through it.

Are you experiencing domestic violence or coercive control? Call the National Domestic Violence Hotline. FreeFrom works to establish financial security for domestic-violence survivor and the National Coalition Against Domestic Violence supports efforts that demand a change of conditions that lead to domestic violence and coercive control.

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com

Also see: ‘We’ve seen an alarming spike in domestic violence reports:’ For some women, it’s not safe to leave the house OR stay home

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My brother owes $10K to our late father’s estate. There’s no loan agreement and I’m executor. How should I approach repayment?

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Dear Quentin,

My father passed and I am the executor of his will.

We sold the house and Dad’s assets with my brother’s help. Probate is done. We are ready to distribute the remainder of my father’s estate, but my brother owes the estate $10,000.

He feels that if he had paid this money back before Dad passed, he would still get half back, and therefore owes $5,000. (Dad also told me that he owed the money before he passed.)

My father’s will says his estate should be split 50/50. I feel my brother owes $10,000 to the estate. I do not want to rock the boat, and will do the right thing in order to keep peace.

What is the proper way to split $200,000 in cash when he owes the estate $10,000? For the record, my brother will abide by whatever I decide. Thank you in advance for your help.

Trying to Do the Right & Proper Thing

Dear Right & Proper,

You are right to not look for trouble where there is none.

Given that there is no notarized loan agreement between your brother and your late father and there is money to be distributed, it would seem simpler and faster to have him sign a note now saying he owes the estate $10,000 and deduct the $5,000 from his eventual inheritance. Done and done. He could, after all, say that the loan was only due to be repaid when your father was alive or, indeed, say the loan was a gift. (The subject of countless episodes of “Judge Judy.”)

Your story is a cautionary tale of what could go wrong. “A hug or a handshake is not sufficient to bind someone to loan repayment. Loans and repayment obligations should be spelled out in writing and include repayment terms upon the testator’s death,” according to the Absolute Trust Counsel, a California law firm. “It is the responsibility of the executor to collect the balance due. An estate cannot be settled until all loans are collected and all debts settled or paid.”

“When an estate is insolvent, the collection of outstanding loans becomes especially important. Creditors want to be paid and will pursue all available resources to accomplish that,” the firm adds. “Many times, unpaid loans create dissension among heirs. In some cases, heirs who owe money still expect to receive an equal share of an estate.”

There is a healthy cash sum from which to deduct your brother’s loan: $105,000 for you and $95,000 for him. It could get sticky otherwise.

Thankfully, your brother also wants to do what’s right and proper.

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com

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