This was a headline in the Wall Street Journal on April 5, 2021. Of all the things going on in markets this year, one of the most important is the battle between growth stocks and value stocks. Growth stocks have outperformed for years, but as the vaccine rolls out and the economy starts to reopen, value has taken the lead this year (Russell 1000 value index is up 12.94% YTD, while Russell 1000 growth index is up 4.2%). Now, everywhere you look, someone is either arguing that value is going to further close the gap and investors should shift to value stocks, or that growth stocks are now undervalued and investors should go back into growth.
As with many things on Wall Street, the answer may lie in the middle. Value hasn’t come close to growth over the past couple of years, so there could be a lot of room to run to get back to some sort of equilibrium. The vaccine rollout seems to be going well and global economies are reopening. All of that benefits value companies. However, growth still has some strong headwinds. Technology still runs the world, so tech stocks aren’t going anywhere. Structurally, there are still billions flowing into the S&P 500, which is more than 20% FANG and Tesla (TSLA).
Therefore, the answer isn’t one or the other, value or growth. It’s a tilt. Now that value stocks are stronger, one could tilt their portfolio towards them without abandoning growth. One could also tilt their growth portfolio from the high fliers towards stodgier names. If growth reverses, one can tilt back. That way, one is not trying to time the market but rather is attempting to stay in harmony with market trends.
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FANG is an acronym for high-growth technology stocks that have disproportionate influence on the overall valuation of the S&P 500 Index.
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