Growth stocks continue dominating their value peers in the early stages of 2020 as energy stocks falter and financial services name lag due to low Treasury yields.
Meanwhile, technology and consumer discretionary stocks – home to mega-cap growth fare such as Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) – are powering growth’s ascent and helping a slew of ETFs, such as the SPDR Portfolio S&P 500 Growth ETF (NYSEArca: SPYG).
SPYG, which tracks the S&P 500 Growth Index, and rival growth ETFs can actually perform well late in the business cycle. Investors can still enhance their portfolios as the bull market extends with growth-oriented stocks that continue to perform despite the recent bouts of volatility. The growth style has outperformed the market in spite of being prone to sell-offs with strong corporate earnings.
“The U.S. has better growth; the S&P 500 is a more growth-geared/large-cap index; and there is, in the current context, a perceived scarcity of S&P 500 market value to go around in a world of $300 trillion household liquid assets,” reports Michael Santoli for CNBC.
Year-to-date, SPYG is up 8.33% compared to a 4.89% gain for the S&P 500. Moreover, SPYG’s 2020 showing is nearly eight times better than that of the S&P 500 Value Index.
“Bank of America global strategist Michael Hartnett, who has been correct in calling for a strong run in risk assets into early 2020, continues to recommend playing this trend until investors grow more clearly ‘euphoric,’ which he expects will mark the moment of ‘peak positioning and peak liquidity,’” according to CNBC.
Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors.
Growth stocks are often associated with high-quality, prosperous companies whose earnings are expected to continue increasing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. Still, data suggest the growth/value premium isn’t overly elevated relative to historical norms.
Investors have added $1.02 billion to SPYG since the start of this year.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.