Tags: Kenny | stocks | risk | S&P 500

Knight Capital’s Kenny: Money Is Flowing into Riskier Growth Stocks

Monday, 29 Apr 2013 11:29 AM

By John Morgan

Company guidance during the current earnings season is sparking a tumultuous rotation of money from big, safe stocks into riskier names, according to Peter Kenny, managing director at Knight Capital.

Guidance is a bit confusing at some levels, he noted, particularly with some negative economic trends such as a drop in durable goods order, flat business investment and continued Eurozone weakness.

“We’ve seen the trading off of the earnings very dramatically volatile,” Kenny told Yahoo. “It’s led to a lot of volatility in the overall market.”

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Kenny said the “lumpy and uneven” quarterly results has created a lack of market harmony, but has also uncovered some sectors that were previously neglected.

"Earnings and guidance are helping that rotation out of the defensives and into the more risk-oriented or growth-oriented or alpha-oriented issues, and away from the Dow 30 and into the S&P 500," he said.

Kenny said both small-cap and mid-cap stocks are beating the Dow Jones Industrial Average at the moment.

A broader lineup of benchmarks, including the Dow Utilities, Dow Transports and Nasdaq 100, as well as biotech, bank, semiconductor, builders and gold indexes have all outperformed the Dow Industrials recently, according to Yahoo.

During the current earnings period, investors have witnessed more companies lowering their profit outlook for the rest of 2013, USA Today reported.

Scott Freeze, president of Street One Financial, told USA Today he believes the stock market is "slowly melting up on basically nothing."

"Some of the earnings were OK, but it's more just stimulus, stimulus, stimulus," Freeze said. "As long as the world wants to print [money] … the fears of a global slowdown are going to be muted."

Joe Heider, principal at Rehmann Group, was of the opinion stocks are up by default because investors cannot think of a viable investment alternative.

"You can leave it in cash and make nothing on it," Heider told USA Today. "You can put it in bonds and earn nothing."

Approximately 50 percent of the S&P 500 companies have reported results so far, with 69 percent of firms beating expectations and 20 percent missing them, according to Thomson Reuters data cited by CNBC.

If all remaining companies report earnings in line with estimates, earnings will be 3.8 percent higher than in 2012’s first quarter, CNBC said.

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