Strategists at investment manager AllianceBernstein are predicting US equities will lag global equities over the remainder of the year, with high earnings expectations raising the prospect of disappointment for investors over the months ahead.
In a research report led by chief market strategist Vadim Zlotnikov, the investment manager claims European and emerging-markets equities currently offer better value for investors.
US growth stocks warning
Along with advocating an underweight stance to US equities versus European and emerging-markets stocks, the AllianceBernstein strategists believe US value stocks look set to outperform the US growth segment.
If this comes true, it would mark a rotation away from growth stocks, which have outperformed their value peers over the past year. The Russell 1000 Growth index rose by around 20% in the year through to May 2017, compared with a rise of just under 15% for the Russell 1000 Value index.
The biggest firms in Russell´s US Growth index include mega technology stocks such as Apple, Microsoft, Amazon.com, Facebook and Alphabet. Meanwhile, among the value index´s heavyweights are more traditional names such as Exxon Mobil, Berkshire Hathaway, JP Morgan Chase and Johnson & Johnson.
Nonetheless, the AllianceBernstein team remains upbeat on global stock markets as a whole, favouring equities versus other risk assets such as corporate bonds. It ranks European and emerging-market equities as still holding decent upside for investors.
The optimistic tone on continental European stocks comes as the outlook for the eurozone economy continues to brighten.
At the same time, the US economy has looked less convincing this year with first quarter growth having slowed significantly versus the prior quarter. The Federal Reserve (Fed) is also well advanced in its interest rate tightening cycle, having already hiked interest twice this year alone.
AllianceBertnstein´s take on US growth stocks contrasts with the tone being adopted by strategists at Citigroup.
The latter believe the growth segment´s outperformance versus US value could continue as long as the current bull market remains in place.
In its own recent research report, Citigroup said value stocks were only likely to overtake growth names if bond yields and oil prices were to rise meaningfully.
Despite recent interest rate hikes from the Fed, bond yields have so far remained low, while oil prices have been hit by rising production in North America as well as high US stockpiles.