Summary of "2-12-26 The Value Rotation Illusion"

Summary — “2-12-26 The Value Rotation Illusion” (Real Investment Show — Lance Roberts + Mike)

Top-line themes

Markets look technically extended on long-term (20‑year monthly) charts, with many indices and sectors trading multiple standard deviations above long-term monthly moving averages — a setup that historically precedes mean reversion/corrections, though overbought conditions can persist for months.
A likely dollar rally (the dollar is currently oversold / near a technical buy signal) would pressure dollar-sensitive assets (international, emerging markets, commodities, precious metals, materials). Consider currency sensitivity in positioning.
Much of what is being labeled “value” today is not cheap by fundamental measures; investors who rotated from mega‑cap growth into perceived staples/value may have bought expensive stocks. Re-evaluate using forward and multi‑year growth‑adjusted metrics (e.g., PEG).
Employment and inflation data contain large seasonal and modeling adjustments (birth–death, homeowners’ equivalent rent). Headline job and inflation prints can be misleading. Use smoothed series (12‑month average) and alternative data (ADP, RIA’s “true inflation” index) for context.

Key takeaway: Don’t assume label = value. Combine long-term technical context, multi‑year growth‑adjusted valuation (PEG), and smoothed/alternative macro data when positioning.

Assets, sectors, tickers, and instruments mentioned

Indices: S&P 500 (market-cap and equal-weighted), Dow Jones Industrial Average, international developed equities, emerging markets.
Sectors: basic materials, industrials, transportation, energy, materials, health care, consumer staples.
Selected stocks / tickers: NVDA (Nvidia), AVGO (Broadcom), MSFT (Microsoft), META (Meta/Facebook), AMZN (Amazon), LLY (Eli Lilly), AAPL (Apple), TSLA (Tesla), WMT (Walmart), COST (Costco), PG (Procter & Gamble), KO (Coca‑Cola), PEP (Pepsi), CLX (Clorox), JPM (JPMorgan), VZ (Verizon), MO (Altria).
Commodities / FX / rates: Gold, Silver, US Dollar, Treasury market (bonds).
Data providers / models: BLS payrolls, ADP, birth–death model, RIA “true inflation” index, CPI (incl. homeowners’ equivalent rent).
Vehicles / flows: ETFs (large cap value, equal‑weighted ETFs, passive flows), factor rotation model.

Methodologies and frameworks described

Technical / long-term momentum setup
- Use 20‑year monthly charts and measure standard deviations (2–4 SDs) above/below long-term monthly moving averages to identify extreme overbought/oversold conditions.
- Monitor equal‑weighted indices and sector‑level SDs to detect breadth-driven rallies.
Valuation framework
- Compare trailing P/E, forward P/E (1‑year), and PEG (price/earnings ÷ expected growth rate over 3–5 years).
- PEG adjusts P/E for anticipated multi‑year growth — helps distinguish true “growth” from overpriced “value.”
Employment smoothing
- Use a 12‑month rolling average of payrolls rather than relying solely on seasonal adjustments to reduce volatility and noise from Jan/Dec swings.
Portfolio / factor approach
- Factor rotation model to capture shifts between value and growth.
- Diversify across factors and sectors to capture passive flow rotations.
- Rebalance and trim winners; use protective adjustments rather than wholesale selling.
Currency‑risk approach
- Identify dollar‑sensitive assets (international equities, EM, commodities, precious metals) and adjust exposure if a dollar rally materializes.

Key numbers, statistics, and timelines

Payrolls and employment
- Consensus before the release: ~40k–70k jobs (some high‑end estimates ~105k). Headline payrolls printed ~130k.
- Significant benchmark revisions: March of last year revised down by ~898,000 jobs (large downward revisions to 2023 highlighted).
- ADP / alternative indicators suggest true monthly payroll growth may be closer to 20k–50k per month.
- Birth–death model additions this January: ~145,000 (speaker reference); ~+60k difference vs prior year’s component.
- Government job cuts and healthcare sector drove much of the official reported growth last year (health care accounted for most job gains).
- AI‑attributed job losses referenced ≈48,000 (speaker comment).
Valuation examples
- Walmart P/E ≈ 45; Costco > 50; Pepsi ≈ 30; Clorox ≈ 36 — staples perceived as “cheap” are often expensive on P/E.
- Nvidia PEG ≈ 0.50 (implies ~45% annualized earnings growth). If growth assumed in the low‑20s, PEG ≈ 1; only with ~10% growth would Nvidia look similar to Walmart on PEG.
- JPMorgan noted as a relatively cheaper financial by P/E.
Technical extremes
- S&P 500 equal‑weighted: ~3 standard deviations above long‑term mean.
- Basic materials: near ~4 SDs above mean.
- Emerging markets and international equities: ~3+ SDs above mean.
- Gold and silver: above 4 SDs (historical reference).
Performance divergences year‑to‑date (at time of discussion)
- Large‑cap value ≈ +8% YTD.
- Large‑cap growth roughly flat or down ~1–2%.
Inflation / CPI
- Homeowners’ equivalent rent comprises ~42% of the CPI housing component; shelter measurement is a large driver of core CPI distortions.
- CPI ex‑food & shelter noted as below 2% (commentary context).
- RIA’s “true inflation index” reportedly fell sharply over the prior six weeks.
Fed / rates implications
- If inflation (CPI / “true inflation”) keeps weakening, rate‑cut expectations could rise materially (speakers mentioned the possibility of 3–5 cuts this year versus market pricing of fewer).

Explicit recommendations and cautions

Reassess what “value” means: many perceived value/staples are expensive on traditional and forward‑looking valuation measures. Don’t assume staples ETFs equal cheap defensive exposure.
Check multi‑year growth expectations (PEG) rather than only trailing or 1‑year EPS when classifying value vs growth.
Consider trimming/taking profits and rebalancing risk given widespread long‑term technical overextension.
Be mindful of dollar positioning — a stronger dollar would likely reverse international/EM/materials/commodity rallies.
Watch for passive flows and ETF label drift — ETF index composition can change and include mega‑caps in “value” ETFs; don’t rely solely on the ETF/sector label.
Use smoothed employment measures (12‑month average) or alternative payroll data (ADP / other high‑frequency trackers) to reduce noise from seasonal adjustments and the birth–death model.

Data caveats and disclosures

Forward earnings and multi‑year growth projections are uncertain and subject to large estimation error; analysts often disagree. PEG‑based conclusions depend heavily on growth assumptions.
BLS payrolls include large seasonal and birth–death adjustments and can experience sizable benchmark revisions — headline numbers can be misleading.
RIA’s “true inflation index” is an alternative indicator; CPI uses different adjustments (especially homeowners’ equivalent rent) that can lead to different official outcomes.

Operational and timing notes

Upcoming CPI inflation report referenced as being released tomorrow (Friday) — expected to be important for Fed expectations.
President’s Day: markets closed Monday (holiday‑shortened trading week).
RIA content: weekend newsletter (bull/bear report) and daily market commentary will cover the potential dollar rally.
Candid Coffee event about annuities on Feb 21 (promotion).

Presenters and sources

Lance Roberts (host, Real Investment Show / RIA Advisors).
Mike (referred to as Mike / Michael — co‑host/guest; appears to be Mike Lebowitz or Michael at RIA).
Also referenced: Danny Ratliff (Candid Coffee co‑host), RIA Advisors / realinvestmentadvice.com, BLS, ADP, CPI data.

Notes on transcription / terminology

Subtitles contained a few transcription errors (e.g., an unclear reference to “Doge” regarding government job cuts and a payroll data vendor name approximated as “Ravilio”). Where uncertain, the summary uses context‑based interpretation.