Our Top 10 report was just published. In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.
The Growth Vs Value Cheat Code
We’ve pounded the table about that 1.70 level being the line in the sand for the relative trend in Growth vs Value. If we’re below there - which we believe we’re likely to remain, then we want to continue to be overweight Value and cyclicals. If the ratio decisively reclaims this level then we’ll have to rethink our entire thesis, along with that of a new Commodities Supercycle. But, that’s not the bet we’re making at all.
The chart below shows Growth vs Value (IWF/IWD) overlaid with Tech vs Financials (XLK/XLF) as these are the main drivers of the two factors. We believe there is incredible information in the Tech vs Financials ratio. It was tested, and successfully defended in both April and June of last year, as well as again in early March of this year. Clearly, this area is a battleground for this relative ratio… And we think it holds the key to where the Growth vs Value trend is finally headed for this next cycle. Now that Growth and Tech have experienced about a month and a half of mean reversion, which although hard to see is actually illustrated in both of these ratios as XLK/XLF has rebounded strongly off that 3.70 level and is currently above 4.
Likewise, Growth vs Value has rallied back to its pivot lows from November and January at that absolutely critical 1.70 level during this same time... and to no surprise, looks to be failing.
Possibly the best piece of evidence - aside from IWF/IWD remaining below 1.70 itself, of course - is seeing XLK/XLF finally violate those critical dot-com bubble highs at 3.70. If and when this happens, all bets are off for Growth and it’s time to pile in on the global growth, reflation, cyclicals & value, and overweight risk assets in general theme. That’s the cheat code… 3.70.
