While growth continues to outperform value, there are signs that the trend might be shifting, according to a recent Barron’s article.
“While nothing grows to the sky forever,” the article says, “secular trends can last longer than investors expect.” It adds, however, that “applying fundamental analysis exclusively might lead investors to position for mean reversion too early,” arguing that technical analysis can help to avoid this.
The article compares the performance of the Russell 1000 Growth index to the broader Russell 1000 index, noting that, since last September, the growth index outperformed the broader index by 15 percentage points. “Switching into value last year,” the article notes, “would have been painful.”
But according to the article, now that the ratio of the Russell 1000 Growth index/Russell 1000 index has “gone vertical” and returned to its 2000 peak, “it’s time to be vigilant for signs that the trend has peaked. While the ratio continues to make higher highs, momentum is at record overbought levels.” It advises investors to “watch for momentum to roll over as a signal that the bull market is peaking.”
Conversely, the article notes, the ratio of the Russell 1000 Value/Russell 1000 index is “cratering to new lows,” which may suggest that value is bottoming. It concludes with a note that rising long-term rates and a quickening pace of economic growth could potentially reverse these trends.
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