Forget Growth, Bet On Value ETFs In 2019

The Wall Street staged a comeback this year on robust December job data and Powell’s dovish comment. Notably, the American economy added higher-than-expected 312,000 jobs in December — the biggest gain in 10 months — while unemployment jumped to 3.9%, the highest rate since August.

Signs of progress in U.S.-China trade talks, as well as hopes of more stimulus for China's economy, also boosted demand for riskier assets. Additionally, Fed minutes, which indicated caution on future interest rate hikes, helped to boost sentiments.

Against the bullish backdrop, growth investing gained prominence with iShares Russell 1000 Growth ETF (IWF - Free Report) rising 5.6% compared with a gain of 5.2% for its value counterpart, iShares Russell 1000 Value ETF (IWD  - Free Report). The thin margin outperformance of the growth ETF suggests that the trend might reverse soon given the myriad woes.  

This is especially true given that uncertainty over the U.S.-China trade deal, global growth concerns, and Brexit issues are the biggest overhang for the stock bulls. Additionally, growth in the world’s biggest economy has been slowing down as gauges of manufacturing and consumer sentiment have fallen in the recent weeks. In particular, U.S. manufacturing activity slowed sharply in December to a two-year low due to a plunge in new orders and hiring at factories.

With the government shutdown now in its fourth week (the longest ever) and 800,000 federal workers on furlough, the risk of recession has increased significantly. Analysts surveyed by Bloomberg put the risk of a U.S. recession at the highest in more than six years. They see a 25% chance of a slump in the next 12 months, up from 20% in the December survey.

Further, the World Bank has cut global growth forecast to 2.9% for this year from the previous projection of 3%, citing rising trade tension, weakening manufacturing activity and growing financial stress in emerging-market countries. If these weren’t enough, a Bloomberg report revealed that investors have shifted from the bullish bets to ETFs that profit when markets tumble.

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