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Certain cheap stocks are poised to outperform as inflation concerns mount and the market stagnates, according to BTIG.
“The U.S. economy is running hotter than the 33 cars (top speed, 239 MPH) at [the] Indianapolis 500,” Julian Emanuel, a managing director and chief equity and derivatives strategist at BTIG, said in a note released Sunday.
A key inflation gauge — the core personal consumption expenditures index — rose 3.1% in April from a year earlier, faster than the forecasted 2.9% increase.
Historically, when the core PCE measure stays above 2% for a sustained period, the stock market loses 1.6% per month on average, Emanuel pointed out.
BTIG identified a list of “Checkered Flags” — stocks it believes could outperform as the market gets choppy.
The firm screened for stocks with a low price-to-earnings ratio, relative to their own record, that have historically beat the S&P 500 by 1% or more per month during periods when the core PCE remains 2% or higher. These stocks have led in their respective industry subsectors since Feb. 16 — the first time the 10-year Treasury yield spiked to its highest level in a year — yet they are lagging for 2021.
Take a look at five of BTIG’s “Checkered Flags.”