By William Watts and Chris Matthews, MarketWatch

U.S. investors pile into value stocks, dump momentum

U.S. stocks traded flat-to-higher at the start of trade Wednesday, as investors eyed a continuing rotation from defensive and momentum-driven stocks to cyclical and value-oriented ones, and further clarity on central bank stimulus plans and trade negotiations.

How are the major benchmarks performing?

The Dow Jones Industrial Average rose 22 points, or 0.1%, to 26,938, while the S&P 500 index advanced 1 point, or less than 0.1%, at 2,981. The Nasdaq Composite index gained 14 points, or 0.2%, to 8,100.

The Dow saw its fifth straight gain Tuesday, rising 73.92 points, or 0.3%, to end at 26,909.43 -- marking its longest winning streak since a six-day run that ended on June 10. The S&P 500 eked out a gain of 0.96 point to end at 2,979.39, while the Nasdaq shed 3.28 points, or less than 0.1%, to close at 8,084.16

What's driving the market?

While markets have appeared calm on the surface, investors are watching to see if a heavy internal out of previously market-leading momentum shares in favor of previously out-of-favor value stocks -- accompanied by declines in defensive sectors that were outperforming for several week -- will continue Wednesday.

Momentum strategies focus on buying shares that have previously gained and have offered outsize returns for much of the current bull market, while value shares have lagged behind.

Tuesday's action saw the iShares Edge MSCI USA Momentum Factor ETF (MTUM) fall 1.5%, while the iShares Edge MSCI USA Value Factor ETF (VLUE) rallied 1.4%. So far this week, MTUM is down 3.1% versus a 3.2% rise for VLUE.

Also see:Energy, financial stocks soar: Oversold bounce or the beginning of a breakout? (http://www.marketwatch.com/story/energy-financial-stocks-soar-oversold-bounce-or-the-beginning-of-a-break-out-2019-09-10)

Small-cap shares have also rallied, with the Russell 2000 rising 1.2% Tuesday to give it a 2.5% rise so far this week versus a largely flat performance for the large-cap S&P 500.

"From a technical perspective, the rally in small-caps is the most important development of the week, so far, as the Russell 2000 hit a five-week high outperforming its large-cap peers," said Ken Berman, strategist at Gorilla Trades, in a note.

The Russell 2000 has lagged behind the broader market for several months and remains more than 10% below its all-time high despite a recovery over the past couple of weeks, he said, noting that this weeks' move has seen it move back above both its 50- and 200-day moving averages -- viewed as measures of short and longer-term momentum, respectively -- for the first time since late-July. If the Russell remains "relatively strong," major indexes could be on track for a round of all-time highs, he said.

Meanwhile, Treasury prices remained under pressure Wednesday, driving up yields, after an August rally. The rebound in yields reflected easing worries over the U.S.-China trade battle, at least for now, as officials from both countries prepare for renewed talks. Potentially boosting sentiment Wednesday was a Chinese decision to exempt some products (https://www.nytimes.com/2019/09/11/business/china-tariffs-trump.html?action=click&module=Well&pgtype=Homepage&section=Business)from retaliatory import tariffs announced in August. (http://www.marketwatch.com/story/china-retaliates-with-tariffs-on-60-billion-of-us-goods-2018-09-19)

Investors are also looking for the European Central Bank to deliver an interest rate cut and potentially other measures when policy makers meet Thursday, while the Federal Reserve is expected to deliver another rate cut when it meets next week.

President Trump renewed his calls for the Federal Reserve to aggressively cut interest rates, arguing that the Fed Funds rate should be cut "to zero or less."

(https://twitter.com/realDonaldTrump/status/1171735691769929728)

Wholesale price growth accelerated slightly in August (http://www.marketwatch.com/story/wholesale-prices-inch-up-in-august-but-inflation-isnt-stirring-very-much-ppi-shows-2019-09-11), with the producer price index rising 0.1%, versus a flat reading expected by economists polled by MarketWatch. Wholesale price growth rose year-over-year at a 1.8% rate, versus a 1.7% advance in July.

Data on July wholesale inventories are due at 10 a.m. Eastern Time.

Which stocks are in focus?

Shares of GameStop Corp. (GME) tumbled 20% after the video-game retailer reported a second-quarter loss of more than $400 million (http://www.marketwatch.com/story/gamestop-earnings-show-massive-losses-stock-plunges-15-in-late-trading-2019-09-10) Thursday evening, driven largely by a $363.9 million goodwill impairment charge, while missing expectations for earnings and sales when excluding the one-time cost.

Amazon.com Inc. (AMZN) stock could be in focus Wednesday, after a report (http://www.marketwatch.com/story/ftc-probing-amazon-over-marketplace-report-2019-09-11) that the FTC is investigating Amazon's third-party seller marketplace to determine whether it is using its market power to harm competition. Shares fell 0.5% Wednesday morning.

Shares of ride hailing companies Uber Technologies Inc. (UBER) and Lyft Inc. (LYFT) could be in focus Wednesday after the California Senate passed a bill (http://www.marketwatch.com/story/lyft-uber-braced-for-fallout-from-california-labor-bill-2019-09-11) that would likely force the companies to classify their drivers as employees, rather than contractors. The bill is expected to be soon signed into law by Gov. Gavin Newsom. Uber shares were down 1%, while Lyft shares advanced 0.7% early Wednesday.

How are other markets trading?

The yield on the 10-year U.S. Treasury note rose 4 basis points to 1.75% Wednesday, extending (http://www.marketwatch.com/story/treasury-yields-rise-as-traders-look-ahead-to-producer-prices-and-debt-sale-2019-09-11)a selloff in bonds that has (http://www.marketwatch.com/story/treasury-yields-rise-as-traders-look-ahead-to-producer-prices-and-debt-sale-2019-09-11) driven the 10-year yield 12.4% higher week-to-date. Bond prices move inversely to yields.

In commodities markets, the price crude oil rose 0.2% to about $57.50 a barrel, on weekly data showing a drop in U.S. inventories (http://www.marketwatch.com/story/oil-boosted-by-signs-of-tightening-us-supplies-2019-09-11), while gold prices edged 0.2% lower to around $1,496 an ounce. The U.S. dollar , meanwhile, edged higher against a basket of its peers.

In Asia overnight Wednesday, stocks were mixed, with the China CSI 300 l osing 0.7%, while Hong Kong's Hang Seng index added 1.8% and Japan's Nikkei 225 rose 1%. European shares were trading higher Wednesday, with the Stoxx Europe 600 up 0.6%.

(END) Dow Jones Newswires

September 11, 2019 09:44 ET (13:44 GMT)

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