Macroeconomic drivers are creating an unnatural market environment in which low-quality stocks are outperforming companies with stronger fundamentals, according to an analysis by Hennessee Group, a hedge-fund investment consultant.
Companies rated C by the S&P returned a whopping 65.7% over the past seven quarters, while A-rated stocks returned just half that, 33.6%. And it’s not because those C stocks are diamonds in the rough. “Lower-quality stocks should drop dramatically, but right now all ships are rising because of quantitative easing by the Fed and the weakened dollar,” Gradante explained.
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