Last week, value and growth were both down about the same while momentum stocks were down at least 2x as much. Still, every day is either a growth day or a value day, and you can somewhat discern this from looking at the Dow Jones Industrial Average vs. the NASDAQ: if the Dow is up more, then it’s a value day. Conversely, if the NASDAQ is up more, it’s a growth day. So far this year the overall trend has moved towards value. The media will point to interest rates as the main catalyst. While higher interest rates are better for value vs. growth, we still think this is just an excuse for what was going to happen anyway. Reversion to the mean is one aspect of how markets function that will never change; if growth and value returns get too disconnected, they will eventually snap back to some sort of equilibrium. We are not too worried about interest rates, at least not yet. The Fed isn’t going to do anything for a bit, so that should put a cap on how high rates can go.

I also keep noticing stories about Covid and new lockdowns. As the vaccine continues to roll out, we should be seeing less of these stories, but we are not, and that is a bit concerning. What does this mean for portfolio design? You should still probably have growth and value stocks in some proportion. Remember, growth will typically be higher beta, so even a 50/50 portfolio will still be dominated to some extent by growth stock returns. Also, keep an eye on the Covid headlines.


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