So Many Value Contrarians

 It's fashionable to be a value investor these days.  You would think that Nasdaq stocks were performing horribly and small cap stocks were doing great all year when you see so many "experts" come out and tout value stocks, and opine on how overbought and overvalued tech stocks are.  Here is the YTD chart for the NDX and the Russell 2000 (RUT):

The NDX is up 33% YTD, and the RUT is up 4%.  Only in the past few days have you seen a big divergence, and it is well chronicled, and the new fast money trade is to buy the Russell and short the Nasdaq, the opposite of what was working all year until this week.  

Suddenly, some positive vaccine news and the market is starting to price a hot economy, selling off bonds and bidding up financials and energy stocks.  If I had a dime for every time someone on Twitter argued for value over growth, and a dollar for every time someone on Twitter argued for growth over value, I'd have a lot more dimes than dollars.  And that's not just recently, its been like that for months.  The value bulls are much louder than the growth bulls. 

Just because you are buying beaten up stocks and underperformers doesn't make you contrarian.  Often times the contrarian trade is to ride the big up trend while skeptics say its gone too far.  This is one of those times. 

I am no raging Nasdaq bull, but if I had to choose between buying the NDX and the RUT at today's prices for the rest of the year, I would choose the NDX.  

The people on CNBC almost uniformly are bullish on the value stocks, the cyclicals, and not so bullish on what has been working all year until this week, the tech stocks.  At this point, most fund managers' base case is for a cyclical economic recovery in 2021 with fiscal stimulus and vaccine news pumping stocks higher.  

Because of the amount of risk reduction in a lot of portfolios ahead of the election, there is still some money to be deployed by fund managers who decided to wait till after they got some certainty on the election to buy stocks.  So that's what will drive stocks higher over the coming weeks, not this new found optimism about vaccines leading to a quick reopening of the economy.  That is why I bought a partial long SPX position yesterday after I sold on Monday.  

The post-election money flows are going to be a bullish factor for a few more weeks, so I want to ride that wave higher.  But its not because suddenly the economy will look great in 2021 because of the vaccines, its purely a trade based on inflows. 

I also have started an intermediate term position going long Treasuries, as 10 year yields are close to strong psychological resistance at 1.0% and 30 year yields at 1.8%.  I don't expect any kind of meaningful rise in interest rates like you saw after the 2016 election.  The Fed has a totally different mentality about rates than 4 years ago.  Its a transitional time for the US bond market, from going from the old normal of rate increases to fight inflation to the new normal of reducing/stopping QE to fight inflation.  

The US bond market is well on its way to follow the Japanese and European bond markets, perpetual ZIRP/NIRP, with only changes to QE acting as a tightening/loosening mechanism.  With the dependence on low rates to maintain economic growth and the sheer amount of debt outstanding, they just won't be able to raise rates without crushing the financial economy, which is all they care about.  So the era of interest rate changes in US monetary policy is basically over, in my view.