NEW YORK, June 19 — The Federal Reserve’s hawkish shift is forcing investors to reevaluate the rally in so-called value stocks, which have taken a hit in recent days after ripping higher for most of the year.
One factor driving the move is the idea that a Fed more strongly focused on preventing the economy from overheating may begin unwinding easy-money policies sooner than previously expected. Yesterday, St. Louis Federal Reserve President James Bullard said the central bank’s shift was a “natural” response to economic growth and inflation moving quicker than expected, bolstering that view.
Investors will be keeping a close eye on next week’s economic data for clues on whether the recent surge in inflation — which saw consumer prices accelerate at their fastest pace in 12 years last month — will persist. An unwinding of the heavy positioning in value shares could exacerbate the recent slide. Mutual funds are overweight value names to a larger degree than any time in the last eight years, according to a Goldman Sachs report published on June 9.
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