As reported by Reuters, the latest leg of the bull market within US equities markets saw large paydays for buyers of growth-focused stocks, but that particular page may have turned over.
Key quotes
“Paying a premium for shares of fast-growing companies like Amazon Inc and Google parent Alphabet Inc over those viewed as good value for the money has been a recipe for success for more than five years. Growth stocks have beaten their value rivals by a margin of more than two-for-one in that span. Until now.
In the last month, the wheels have fallen off that profit vehicle. The Russell 1000 Growth Index, which features stocks that trade at high prices relative to their earnings, has sunk more than 10 percent so far in October, its poorest performance since the financial crisis. In that same period, the Russell 1000 Value Index is down just 7 percent. That shift was cast into sharp relief last week after major revenue shortfalls reported by both Amazon and Alphabet triggered the largest drops in their stock prices in years. Nasdaq, stacked with growth names from the tech sector in particular, is in a full-fledged correction – the term for a fall of at least 10 percent from the most recent peak.
“When the rotation started to go back the other way, sort of reversion to the mean, value went on to outperform growth for several years. It was a longstanding reversion-to-the-mean kind of a trade,” said Phil Orlando, chief equity market strategist at Federated Investors, in New York.
The S&P 500 is now down about 9 percent from its Sept. 20 high, with some of the year’s best-performing and heavily weighted sectors, such as technology and consumer discretionary, contributing to the decline.
Steve DeSanctis, equity strategist at Jefferies in New York, said there are sound reasons to own value stocks now. “We are starting to see earnings accelerate faster for value than for growth, and if GDP is going to be north of 3 percent, we should see a pretty good earnings backdrop,” DeSanctis said.”
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