Is a Shift in the Growth/Value Seesaw on the Horizon?

According to Innovative Portfolios CIO Dave Gilreath, the long period in which growth stocks dominated the stock market may be moving towards an end, with value stocks poised to resume leadership.

Vanguard refers to the “East-vs.-West, Seabiscuit-vs.-Admiral” rivalry between growth and value stocks; Seeking Alpha calls it a tug of war. A Seeking Alpha study cited in Investopedia showed that from 2000 through 2013, value stocks outperformed growth stocks. Still, in the latter portion of the period (2007-2013), growth stocks posted higher returns. The author concluded that the study provided no real answer as to which type of stock was “better” overall.

Signs on the horizon

Shawn Tully, writing in Fortune, admits that in recent years the champs haven’t been the automakers, energy names, and retail stores, but the Googles and Amazons and Teslas. Exactly, observes Innovative Portfolios’ Gilreath. Historically, technology stocks have been “avatars” for growth, while financial stocks have been “avatars” for value, But, since last year, he says, the outperformance of tech over financials is slowing.

At least five specific upward trends have been helping value stocks:

  1. price of transport stocks (which are value stocks)
  2. price of commodities (this helps value stocks such as metals, energy, and mining)
  3. “reverse globalization” (the desire to bring manufacturing of car parts, batteries, and chips back to the U.S.)
  4. the decrease in the spread of the Delta variant of COVID-19 (this is helping big companies reopen their offices and plants)
  5. rising interest rates (this challenges earnings-sensitive small companies more than large ones)

Looking back and peering ahead

Although we’re coming out of a long (albeit temporarily interrupted) bull run in growth stocks, the market has, overall, tilted towards value more often than growth, Gilreath points out. Now, he believes, economic conditions seem to bode especially well for a resurgence of value stocks.

Share this post