Growth Stocks Still Outperforming Value Stock Rivals
Throughout the history of the stock
Growth stocks are companies that, as the name suggests, are growing quickly. The big tech companies of FAANG are the perfect example. Their share price performance is based less on their current income and profit and more on what investors consider to be their future potential. Value stock
Since the recovery took hold following the financial crisis a decade ago, growth stocks have been the undoubted winners between the two groups. They’ve outperformed value stocks every single year since. Their popularity has been boosted by low interest rates and sluggish economic growth.
However, there are some signs that the value stocks might once again soon come into their own. This month long term yields on US bonds jumped. Higher yields on Federal Reserve bonds with maturity dates of longer than ten years means a fall in value of future cash flow. This
A significant flight of capital from tech stocks would not only hit the sector but Wall Street and U.S.
However, some of these risks to growth stocks could fade if deals are reached on Brexit and Italy’s budget and China decided to inject some fiscal stimulus into its economy and financial markets. However, parallels can be drawn between today’s tech stock boom and the tech, media and telecoms bubble that popped in 2000. At the time, the Fed was also raising the base interest due to a heating economy and inflation concerns.
The popping of the dotcom bubble led to a period of value
Big tech is currently considered a ‘crowded trade’, which means a high percentage of investors are increasing exposure to it. In fact, it’s been the most crowded investment sector for 9 consecutive months and a Merrill Lynch report also indicated tech is the sector most investment portfolios are overweight in.
However, those investing online right now still face a tricky decision. Momentum is still in favour of growth stocks and a shift towards value could prove early and mean missing out on the strong returns that tend to characterise the end of a cycle. Many respected analysts still believe that value stocks will only return to their own outperformance cycle following the next recession. So while there is no clearly right answer, it might still be too early to shift investment portfolio weighting significantly towards value.
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