IVE: S&P 500 Value Building Long-Term Support Vs. Growth

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It was another solid week for the bears. The S&P 500 fell 3% all 11 sectors finished in the red. Value beat growth as was seen in the sector performance – Utilities were the least bad, off just 1.5% while Information Technology lost more than 5% to enter ‘correction’ territory off its mid-August peak. The S&P Technology SPDR ETF (XLK) is down 12.5% from the intraday high a few weeks ago.

Last Week’s Sector Returns: Utilities & Health Care Outperform, Tech Drops

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While near-term action is unnerving for the bulls, value investors might be encouraged by taking a longer perspective. The value vs growth debate wears on. So far in 2022, value is leading growth by 12 percentage points, according to Bank of America Global Research. That would be the best annual relative performance since 2006.

Value Beating Growth By The Most Since 2006

BofA Global Research

The iShares S&P 500 Value ETF (NYSEARCA:IVE) might just be establishing a floor vs the S&P 500 Growth ETF (IVW). I pulled a relative chart of the two funds dating back to their year-2000 inceptions. Value hit a crescendo vs growth during the middle of 2007 shortly before the broad market peaked that October. Since then, a nearly 15-year downtrend left value investors in the doldrums compared to those overweight growth. The last two years, however, suggest there are vital signs in the IVE:IVW chart.

Value Vs. Growth: A Style Reversal In Process?

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IVE holds blue-chip domestic stocks investors are surely familiar with. Moreover, the year-to-date returns of its top holdings are rather impressive compared to the S&P 500’s 17.4% 2022 decline (total return).

IVE Top Holdings’ 2022 Total Returns

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IVE is down 10.2% this year as value enjoys a moment in the sun versus growth.

Year-To-Date ETF Performance Heat Map

Finviz

According to Morningstar, the IVE portfolio has a weighted average price-to-earnings ratio of 14.5 compared to a 16.7 earnings multiple for the SPX. IVE’s current yield is 2.0%, higher than the market’s 1.7% rate. Investors also get much more exposure to the cheap Energy sector with IVE compared to the broad market. Consider that Energy, with a forward P/E of 8.5, is just 4.5% of the S&P 500. The group’s weight in IVE is 7.7%.

S&P 500 Sector Forward P/E Ratios

FactSet

The Technical Take

There’s no doubt that the S&P 500’s value portfolio is priced cheaply. But knowing the price levels is also important to managing risk. I see two clear levels on the chart that both bulls and bears should pay attention to. Notice how IVE held its pre-Covid high of $132 to the dollar back in June. $132 was also key resistance in early 2021 before rallying above that later in the quarter. Watch out for an accelerated downside move if we see IVE break below that level of support.

In terms of resistance, $152 is the line in the sand to the upside. IVE rallied to that spot last May and June before falling to $132 a few weeks later. Once again, $152 was a profit-taking point just a few weeks ago. If the bulls can manage to take IVE above that resistance, then it could be off to the races and a test of the $160 all-time high.

IVE: Eyeing Key Support And Resistance

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The Bottom Line

Large-cap U.S. value stocks show signs of life. The group is beating growth shares handily this year, but there’s technical work that needs to be done to reverse an absolute downtrend that began at the start of the year. The good news is that positive relative momentum suggests value might lead the market if we indeed see a late-year rally.