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Citi said developed markets, led by the United States, are moving into “value appreciation” that is unsustainable in the long term.
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They attribute the rise in value stocks to rising 10-year interest rates and oil prices, both of which are susceptible to market volatility.
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Despite the Fed's dovish stance on recent interest rate cuts, the yield on the 10-year U.S. Treasury soared to 4.35%, and the stock market followed suit.
While the region may look attractive to investors given recent strength in share prices trading at cheap valuations, Citi cautions against chasing the bull market.
Citi attributes the rally in value stocks primarily to high 10-year Treasury yields and high oil prices, both of which are susceptible to volatility that could undermine their status as rally catalysts. It states that there is.
“The rotation under the all-time high in equity markets clearly turned to value in the US, Europe and Japan in April,” said Citi strategists led by Hong Li. “At the same time, price momentum performance stalled (-0.1%), growth was the worst underperformer in the US, while low risk had the worst return in Europe.”
Strategists also argue that expected rate cuts later this year are expected to lead to stronger expected earnings growth and stock price appreciation for growth stocks, which could ultimately put a stop to stock price gains. are doing.
They also warn that value stocks are highly correlated with the energy sector, which itself is showing signs of overextension. Strategists say tech stocks are likely to lead the wave of gains, with energy and utilities sectors likely to miss out, suggesting potential weakness in value trading.
Read the original article on Business Insider
