By Paul R. La Monica, CNN Business
For some time, many investing experts have been predicting there will be a shift away from big tech towards value stocks. It might finally be happening.
Growth stocks in particular have been pummeled so far this year due to fears about inflation slowing the economy.
The so-called FAANG stocks — Facebook owner Meta Platforms, Apple, Amazon, Netflix and Google owner Alphabet — have all fallen sharply in 2022. So have Microsoft, chip giant Nvidia and Elon Musk’s Tesla.
The SPDR Portfolio S&P 500 Growth ETF is down more than 6% already in 2022 while the iShares Russell 2000 Growth ETF, which owns shares of smaller growth stocks, has plunged 7.5% since the start of the year.
“If the first week of the year is any indication of what to expect over the coming months, investors will have to be nimble in 2022, and be aware of any outsize exposure they may have to growth stocks,” said Solita Marcelli, chief investment officer of the Americas at UBS Global Wealth Management, in a report Monday.
It’s worth noting that two key value sectors, financial stocks and oil firms, are thriving.
The Invesco KBW Bank ETF was flat Monday and is up 10% this year. Banks are beneficiaries of higher interest rates because it makes lending more profitable.
Investors will be eager to see what megabanks JPMorgan Chase, Citigroup and Wells Fargo say about higher bond yields when they report earnings on Friday.
And the Energy Select Sector SPDR ETF, which owns Exxon Mobil, Chevron, ConocoPhillips and other oil giants, is up 9% this year as crude prices have risen from about $72 a barrel to $78 in the past month.
So not all sectors will be hurt by inflation, and it appears that savvy investors are starting to make changes to their portfolios as the big winners of the bull run during the past few years are finally starting to lose their luster.
UBS’ Marcelli noted that “valuations for growth companies should compress more rapidly relative to value stocks” as the Fed raises rates.
“And that is exactly what has happened in the first week of the year,” she said, adding that “more speculative, very rapidly growing, non-profitable tech companies have fallen even more” than the top techs of the Nasdaq.
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