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Doug Ramsey, the chief investment officer of The Leuthold Group, said U.S. equities may still be in the throes of an extended bear market and he would look to domestic value stocks or even overseas for better investment ideas.
“Out of the last 30 up weeks in the S&P 500, 29 have been led by the Russell 1000 growth over value,” Ramsey said during an exclusive interview for CNBC PRO with Mike Santoli. “If you’re looking for renewal, refreshment of this market usually there’s a turnover in leadership and it’s hard to spot necessarily where that would be. I do think there’s a good chance, when the real bear arrives, and we may still be in it, you will see a rotation from growth into value.”
Investors have wondered why the stock market leadership has yet to shift from successful-but-pricey growth stocks to cheaper value plays tied to the health of the U.S. economy. But even though steep growth valuations may in theory make some investors uncomfortable, convincing investors to put cash into neglected value stocks could require some coaxing. The S&P 500 value stock-tracking ETF, IVE, has lost more than 1 percent over the past 12 months while the IVW, which tracks S&P 500 growth stocks, has gained 4 percent.
The same logic could apply to international equities, Ramsey said, which for years have underperformed U.S. stocks.
“You’ve had an 11-year run now in domestic over international. The S&P is at a 50 percent price-to-earnings premium to EFA versus a 15 percent discount 12 years ago,” the investor said, referring to the iShares MSCI EAFE ETF, which tracks the investment results of a basket of stocks outside the U.S. and Canada.
“If we’re still in the same market here, I think domestic will lead it. But when we lapse into a bear, and again there’s a good chance I think we’re still in one, you should see a rotation over to international.”