The Long Reign of Growth Stocks May Be Coming to an End

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Some investors “could take Apple’s warning on Monday that it won’t meet revenue expectations for the current quarter as a sign that the growth stock run is over,” notes Gunjan Banerji in The Wall Street Journal. Over the long-term, he continues, value stocks have outperformed growth stocks. He writes:

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As they grapple with a murky outlook, investors will turn their attention this week to the Fed’s latest meeting minutes and fresh reads on manufacturing. Meanwhile, results from Walmart Inc. on Tuesday will offer new insight into the health of the consumer.

The run in value stocks “was short lived,” said Joe Fath, portfolio manager for U.S. growth stock strategy at T. Rowe Price. “There’s a number of crosscurrents that are driving what you’ve seen.”

The MSCI USA Growth index has returned 9% this year, while the MSCI USA Value Index added 1% through Thursday.

The divergence between growth and value shares has been wide since the financial crisis. Over the long run, however, value stocks have earned better returns than their growth peers, and some investors say it is only a matter of time before growth stocks’ reign ends.

The recent shift has given extra fuel to the market’s star performers and punished shares of financial and energy companies, which typically are in the value category. Financial stocks have struggled to keep pace with the broader market this year, rising just 0.9% in the S&P 500, as yields have dropped in the wake of the viral outbreak. Higher yields tend to improve banks’ lending profitability.

You may be feeling a bit uneasy with the small number of growth stocks driving the performance of index funds today. Alarm bells are ringing for index funds, and the problem lies at the root of the truth behind the S&P 500’s construction.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.