Fund managers see value, cyclical stocks running further despite slow US jobs recovery

Some technology stocks got a boost after a disappointing U.S. jobs report. Some portfolio managers say that blow-out earnings from several large technology companies over are not enough to keep making outsized bets on the sector.

Instead, those fund managers say that they are continuing to rotate into value and cyclical stocks. But their fortune is tied to the economic conditions. And also the economic recovery will be more gradual than anticipated. The notion that the U.S. jobs recovery has not yet peaked was reinforced by data from the Labour Department. This showed the U.S. employers hired far fewer workers than anticipated. The economists said that the lower than expected job gains keeps the Federal Reserve’s accommodative measures in place for an extended period.

The transition between the stay-at-home economy and a full reopening will likely take at least a year.  Barry James, a portfolio manager at James Investment Research said that this transition leaves value stocks more attractive than technology shares over that time.

Sameer Samana, senior global market strategist at Wells Fargo Investment Institute said that the direction of the economy re gains intact and should continue to favour cyclical stocks over defensive stocks. He also stated that they would not read too much into any one jobs report, and continues to think the labour market remains on track and will be more than enough to underpin consumer confidence and consumption.

Jack Janasiewicz, portfolio strategist and portfolio manager at Natixis Advisors said that you had some people saying, that it is as good as it gets across the board. Peak momentum, peak growth, peak earnings, but the market is misperceiving the backdrop here. You are going to end up with robust levels of growth for the remainder of this year.  George Young, a portfolio manager at Villere & Co said that the stretched valuation of large technology companies makes them less attractive than cyclical stocks that will most likely see the greatest economic boost over the next year.

The S&P 500 technology sector, trades at 33.8 times trailing earnings. This is more than double that of the S&P 500 financial sector, which trades at 16.2 times trailing earnings. Young has been adding to his position in cyclical companies like casino company Caesars Entertainment Inc. a position he called as the opposite of the stay-at-home trade.