The benchmark SPDR S&P 500's (
) recent price action has had many investors jittery.
After falling below its 50-day moving average line on July 31,
SPY hasn't reclaimed that gauge of financial health in almost two
weeks. That's fueling analyst concerns about bearish signals in
the market. While talk of a sell-off may be premature, SPY's 6%
return this year lags far behind its outsized 32% gain in
research at Zacks Investment Research. "This led most investors
to seek safety in so-called defensive stocks," she said.
The swing in investment styles may also reflect some
profit-taking and cyclical patterns. "
are rotating out of last year's most profitable investment styles
(small-cap and midcap growth) and are rotating into last year's
laggards (midcap and large-cap value)," said W. Kirk Taylor,
chief investment strategist at 1st Portfolio Wealth Advisors.
Value Has Upper Hand
As the appetite for risk wanes, value ETFs are performing
relatively better than their growth counterparts. "Generally,
investing in value stocks tends to be a more defensive strategy,"
said Ron DeLegge, chief portfolio strategist with etfguide.com.
With higher price-earnings ratios, growth stocks can involve more
More evidence of a risk-averse mood: Many index ETFs
outperforming SPY show a dividend or income focus.
Dividend-paying companies tend to be mature and slow growing.
But investors should not completely write off last year's
winners, experts advise. "It's possible that some of these shifts
are temporary in nature," Taylor said. While investors may want
to rebalance portfolios in light of recent market action, he
added, "many technical indicators suggest a bounce in small-cap
(relative to large-cap) is due, so rebalancing in stages is
Due For A Rally?
If fears that the economy is weakening prove incorrect,
sectors that have excelled this year -- such as REITs and
utilities -- may experience a sharp reversal, Taylor said.
As for SPY's prospects for the rest of 2014, some experts
expect the market to rally. Stocks could even surpass their
record highs this year, DeLegge says. "Our position is an
investor should not be shorting markets that are still
uptrending," he said.
Still, other asset classes may hold even more promise.
"Compared to gold and long-term Treasuries, the relative
performance of stocks doesn't look so fantastic," DeLegge said.
He noted that even if
remain flat, the uptick in M&A activity in gold mining is a
good sign for the sector.