The Real Story of Growth vs Value

JC Parets
January 4, 2022

Until now, the answer to the Growth vs Value question has depended on what type of market cap conversation you're having.

Through the end of 2021 Large-cap Growth was still a leader. It was the Small-cap Growth stocks that had been crushed most of the year, particularly when compared to the performance of Small-cap Value.

You can see the new 52-week lows in IWO / IWN coming into 2022:

So far this year, Large-cap Growth is catching down to its smaller cap counterparts.

Were the Small-caps right all along?

Keep in mind that Small-cap Value stocks includes a ton of Financials, Real Estate and Industrials. As opposed to all that small Tech and Biotechnology that fills up the Small-cap Growth Index.

Now in 2022, you're seeing the Large-caps join in on the underperformance. Remember that Large-cap Growth is about 70% Technology, Communications and Discretionary. Which means all that Mega-cap Tech/Internet space has struggled to start the year, and you can certainly see it in the ratios.

This could be another great year for Value stocks, and the underperformance from your typical growth stock seems to now be expanding to the larger-cap names.

Smells to me like the Bond market is pushing these things around. Higher rates is consistent with all of these occurrences taking place. This is actually perfectly normal under these conditions.

It reminds me of 2004-2006 when rates rose, and growth underperformed value.

If the market thinks rates are going higher, they tend to be less incentivized to buy those high multiple growth names. You're seeing this playing out.

You're also seeing commodities point to higher rates.

So from any sort of intermarket perspective, why would we be betting on bonds right now?

We're looking at renewed strength in Cyclicals. That's where we want to be.

We discussed all of this and so much more on last night's Live Conference Call.

If you haven't gotten a chance to watch it, Premium Members can check out the replay and download all the slides here.

JC

 

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