Value stocks to stay in vogue, as momentum fades

With the wipeout in growth stocks, many investors turned their attention to big-cap and value
names, and the trend is expected to continue for months to come.

"We had seen small caps outperform over the last few years, and now we're seeing signs this
relationship is reversing," said Ari Wald, technical analyst at Oppenheimer Asset Management.
"Every new S&P 500 .SPX high since the start of 2013 was met by a high in the Russell 2000 .RUT2,
but really for the first time this April was the first time that it didn't happen."

Analysts expect the momentum shakeout to continue in Internet, social media and biotech stocks,
despite Monday's higher market and the gains last week in both the Nasdaq .IXIC and the small-cap
Russell.

Momentum names could also attract buying interest Tuesday, after two big names made headlines
after the market close Monday. Netflix announced better-than-expected earnings, sending its stock
nearly six percent higher after hours. It is still trading about $90 below its 52-week high of $458,
reached in early March.

Bio tech merger machine Valeant VRX-CA joined forces with activist investor Bill Ackman in a merger
bid for Allergan. AGN Valeant shares rose sharply, as did Allergan. That could stir up interest in the
sector Tuesday.

"I don't think it's over. If you look at some of the valuations of the sub sectors, they are 25 to 40
percent overvalued," said David Cassese, a director and portfolio manager with BlackRock's Alpha
Strategies group. He focuses on consumer, health care and technology sectors.

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Cassese likes big-cap namesMerck MRK, Bristol-Myers BMY and Pfizer PFE in health care, and
Microsoft MSFT, Intel, INTC Qualcomm QCOM and Motorola Solutions MSI are among his tech
holdings.

Some analysts expect earnings of big caps, especially those with lower price-to-earnings ratios, to
get a boost during reporting season this quarter. Stocks like Coca-Cola KO and General Electric GE,
for example, both rose after reporting slightly better-than-expected earnings.

Earnings due Tuesday morning includeMcDonald's MCD, AT&T T, United Tech UTX, Travelers TRV,
Lockheed Martin LMT, Bank of NY Mellon BK, Xerox XRX, Illinois Tool Works ITW, AK Steel, AKS
Canadian Pacific Railway, CP-CA and Comcast CMCSA (CNBC's parent company). Amgen, Gilead
GILDSciences GILD, Juniper Networks JNPR, VMWare, VMW Yum Brands YUMand Cree CREEreport
after the close.

Cassese said many earnings reports this quarter are going to be distorted by weather-related factors.
"People are going to look through a lot of it," he said.

Analysts are fairly positive on the broader market, despite expectations that the shakeout will
continue in smaller-cap and momentum stocks. The IBB i IBBShares Nasdaq Biotech ETF was trading
higher Monday at 226, but it is still below its February high of 275, and SOCL SOCL, the Global X
Social Media ETF was at 18.90 Monday, well below its March high of just under 23.

"If you expect growth to pick up a little bit, and that we're not at the end of the cycle and this has a
few years to play out, it makes sense to be in more economically sensitive stocks that have lower
P/Es and are more sensitive to an improving economy," said Scott Wren, Wells Fargo Advisors senior
equity strategist.

Read More Need growth? Sell everything and buy this: Cramer

Wren said he had been hoping for a bigger pullback in the S&Pto the 200-day moving average at
about 1,770. That would have provided a good entry point, but he also would add a smaller amount
to equity holdings at current levels.

"The momentum situation had gotten out of hand," he said. "One of the ways to make sure you
don't make your financial goals is to be loaded up on home run stocks." Wren said one of the
warnings that the momentum shakeout was coming was the fact that so many IPOs were coming to
market for companies that had no earnings.

Before last week's bounce back, the Nasdaq and Russell were both nearly 10 percent off their highs,
close to official correction territory.

Read More These stocks are leading the five-day rally

Wald says any bounce in the Russell 2000 now is worth selling, and it is hovering near support at its
200-day moving average. "We are seeing some of these late-cycle conditions develop and at this
point, I believe the strength is with big-cap stocks," he said.

Wald said while the Russell has been diverging for a month now, a multimonth divergence would be
a negative signal for the bull market, which is in late stages.

"It's rare if you look back at all the cycles going back 80 years, only '94 to 2000 and '82 to '87 were
longer and stronger than this one," Wald said. "Duration-wise we're getting there. The longest (bull
market) cycle was 64 months, and we're about 61 months."

But that does not necessarily mean the bull market is close to its end. In those prior periods, the Fed
was removing stimulus and raising rates. The Fed has signaled it does not expect to raise rates until
the second half of next year, though it is removing stimulus by paring back its bond-buying program.

"A lot of the cyclical sectors still look pretty strong. I would still play technology and industrials ...
material and energy right behind it," Wald said. He expects consumer discretionary to continue to
weaken.

Those are the sectors that are showing the most emerging strength against the S&P 500. In the past
five days, energy stocks have been up 5 percent and industrials up 3.8 percent, followed by a 3
percent gain in both materials and health care.

As for financials, Wald said they would become more attractive with rising rates. "I like the story of
rising rates. I think the market could still as a whole, do better. It's (10-year yield) still holding 2.5
percent, and it's just not backing up. The banks will do better if rates move higher," he said. The
market would have a problem, however, if rates got too high, too quickly.

Wald said a stock market correction does not necessarily mean a big drop, and it could come in the
form of a sideways correction. "We had these very muted bull market corrections in 2012 and 2013,
and I think the reason for that was that bonds posed less risk for stocks. We had ultralow rates," he
said, noting that could change. Rates would become troublesome for stocks when the 10 year
reaches 3.5 percent, he added.

Adam Parker, chief U.S. equity strategist at Morgan Stanley, expects growth to lag value, possibly
into next year. The fastest revenue growers are in Internet, biotech and airlines but many of those
are at highs of valuation.

Parker, appearing on " Fast Money ," said the signal from the Fed is not clear on when it will begin
hiking rates, so he says the message from the market is to be in value. "The last few times, we've had
a rally of value stocks this great over growth stocks, it tended to last on average about 10 months.
On average, value outperformed growth by 6 to 7 percent," he said.

"It could last another eight or nine months more," Parker said, adding the message from the market
is sell some hyper-growth exposure and add a little more value. His target for the year is 2,014 on
the S&P 500.

Besides earnings, there is existing home sales Tuesday at 10 a.m. ET and FHFA home price data at 9
a.m. The Treasury auctions $32 billion in 2-year notes at 1 p.m..