Don’t Call It A Comeback
Despite a recent weekly gain in the Nasdaq suggesting growth stocks may be stabilizing after a strong 12-year outperformance, the authors caution it is too soon to declare a shift to value stocks, noting that while current economic and policy conditions favor value, historical patterns and potential waning policy support warrant a neutral stance and a focus on active management amid ongoing market volatility.
Despite a down day Friday, it was a good week for the tech-heavy Nasdaq Composite, with the index up more than 3% for the week. It would seem, after a rough few weeks, growth stocks are finding their footing. But we wouldn’t call it a comeback; growth stocks, on balance, have had a remarkable 12-year run, with the Russell 1000 Growth Index outperforming the Russell 1000 Value Index by about 400% from 2009 through 2020.
That said, it seems the dramatic and long-lived outperformance of growth, married with the recent outperformance of value and the likely (at least near-term) persistence of the factors aiding value stocks, including a strengthening economy and a backing up in bond yields, has many wondering if we are finally witnessing the passing of the performance baton from growth to value.
Our two cents is it is too early to tell. While we do believe ongoing policy support for the economy – both monetary policy and fiscal policy – will create an environment supportive of traditional value equities, we wonder if that environment will persist as policy support wanes. Consider that pre-pandemic, we had an exceptionally long economic expansion, but one that was marked by low interest rates and modest GDP growth – conditions that are supportive of faster growing companies.
We would also note that during that 2009–2020 run for growth stocks, value stocks did manage to outperform in three of twelve years, but never for two or more years in a row. For now, we have taken a neutral position toward growth vs value. We are also emphasizing actively managed strategies that can take advantage of heightened market volatility, another factor we see persisting near-term.