Many commentators have suggested that Thursday's wobble was a necessary correction, with investors taking profits and shaving off some of the speculative momentum that had been disproportionately pumped into tech and other growth stocks.
Growth stocks are those of companies with significant and sustainable positive cash flow and greater future earnings, with revenues expected to grow faster than that of industry peers. Value stocks are those trading at a lower price than their fundamentals, such as earnings, dividends or sales. BCA research strategist Mathieu Savary said in a note Friday that the pattern of value outperforming tech would likely continue throughout the duration of the correction, with European and Japanese equities outperforming due to their lesser reliance on tech.
"Ultimately, the tech underperformance can only continue beyond the correction if yields can move higher, which will hurt growth stocks that derive a substantial proportion of their intrinsic value from long-term deferred cash flows," Savary said.He added that even if tech underperformance did persist, the broader market would likely be able to stabilize, but a more profound shift in leadership away from growth stocks would bring about a deeper and more enduring correction.
Simona Maellare, global co-head of the alternative capital group at UBS, told CNBC's "Squawk Box Europe" on Friday that sentiment would continue to guide valuations and Thursday's dip evidenced the fragility of markets at present.
Mammoth! I wonder what chart you guys are looking at?
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