Long-term relative performance chart of value stocks vs growth stocks
Value vs Growth:markets have a habit of stampeding in one direction, only to turnaround and run just as furiously in the opposite direction. It’s reflective of macro/financial cycles, and social/crowd-psychology cycles.
One of the best illustrations of this is the long-term relative performance chart of value stocks vs growth stocks.
In this chart I have shown the total return view (i.e. inclusive of dividends reinvested) because the price-only view overstates the underperformance of value stocks (given growth stocks historically generated most of their returns from capital growth rather than dividends as such).
But back onto the line of thought from before. We can see several episodes where the line in this chart stretched far from the long-term average, for instance during the dot-com bubble where tech stocks were the new hot thing (for a short while). And then later it was all about financials and commodity related stocks during the subprime credit bubble and commodity supercycle. Only then for commodity bust and financial regulation-reaction to crunch value stocks, along with tech’s second coming — culminating in the 2020 pandemic purge (tech stocks were gifted a growth shock, and value stocks were the initial losers of the pandemic).
Now things are clearly turning around, and by this stage it is looking more and more like *the* turning point is in (these things tend to be multi-year in nature).
Growth stocks (tech and tech related) are taking a back seat as exponential growth assumptions are brought back to reality, and value stocks are finding growth in the form of higher bond yields and commodity prices (e.g. in the case of energy & financials), and a defensive bid (e.g. in the case of healthcare, consumer staples, utilities).
By my metrics, tech stocks still have a long way to go before they show up as cheap, while value stocks are still relatively cheap by comparison. So in keeping with the comment from the start about macro/psychological cycles, maybe this one has a ways to run yet…
https://chartstorm.substack.com/p/weekly-s-and-p500-chartstorm-27-november
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