Is The Most Obvious Conclusion Being Ignored?

The second quarter is almost over. The largest capitalized momentum technology growth companies have greatly outperformed during this period, albeit there has been considerable volatility during the past two weeks. As the quarter concludes, earnings may become the predominate variable for market direction.

According to Bloomberg, value stocks are now expected to see stronger profit expansion than growth stocks, or companies viewed as having high potential for share appreciation based upon the perception that superior earnings growth will last forever.

It is because of this belief of superior earnings growth to infinity and beyond that is why many of the momentum technology growth issues are trading at earnings considerably higher as compared to the market as well as to their historical basis.

By definition, value stocks are cheaper than their growth peers, a price divergence that has become even more acute during the last two months.

If the above materializes—value stocks earnings grow at a greater pace than growth stocks — there could be a massive transition in the immediacy, a transition amplified by the dearth of ownership of value shares and the gargantuan ownership of the mega size technology growth.

Is this what the volatility of the last two weeks is suggesting?

Many years ago, a very well-known investor commented “the most obvious conclusions are those which are ignored.”

As noted many times, mega size momentum technology growth issues have greatly outperformed almost every other vehicle. The ownership in the five largest names is at historical proportions. If the above scenario materializes, perhaps the phrase “the most obvious conclusion was ignored” did occur.

Commenting on yesterday’s market activity, most markets were relatively quiet.

Last night the foreign markets were down. London was down 0.37%, Paris was down 0.60% and Frankfurt was down 0.72%. China was up 0.33%, Japan was up 0.11% and Hang Sang was down 0.02%.