In the past month, we have seen growth stocks outperform value stocks. The recent banking crisis and decreasing inflation have led many to speculate that the era of interest rate hikes may be coming to an end, creating a much more favorable environment for growth stocks.
One way to visualize the outperformance of growth companies is to look at the relative value of the S&P 500 Index (SPX) versus the S&P 500 Equal Weighted Index (SPW). Because SPX weighs larger companies higher and many large companies such as Apple, Nvidia, Tesla, and Amazon are technology and growth companies, an increase in the ratio implies that growth companies have outperformed. For reference, SPW weighs each company equally regardless of size.
Source: Bloomberg, Redwood. Data as of 4/6/2023. Date Range from 12/31/2020 - 4/6/2023.
Will the ratio continue to increase? Although growth companies typically perform well in low-interest rate environments, it is possible that any decline in interest rates may be a response to the onset of a recession, which could negatively affect the broader stock market. Therefore, the path to lower rates could be shaky and result in further pain for investors.
Given these unknowns, we remind investors to remain focused on what is known. That is a disciplined investment process with defined parameters that help investors achieve their financial goals. Our investment strategies help investors stay disciplined by utilizing a rigorous set of quantitative rules that prioritize keeping investors within their drawdown targets.
- Our strategies are built through continuous, innovative, quantitative research.
- We believe long-term investment success stems from the preservation of capital.
- Our mandates include tactical strategies that help limit a portfolio’s drawdown.
Disclosure: This piece is for informational purposes only and contains opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss. Past performance is not a guarantee of future results. Objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above.
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