Data as of 4/29/22
|Standard & Poor’s 500 Index||-3.3%||-13.3%||-1.9%||12.0%||11.6%||11.5%|
|Dow Jones Global ex-U.S. Index||-1.8||-12.6||-13.7||2.2||2.6||2.8|
|10-year Treasury Note (yield only)||2.9||N/A||1.6||2.5||2.3||1.9|
|Gold (per ounce)||-1.6||5.0||8.4||14.3||8.8||1.5|
|Bloomberg Commodity Index||0.4||30.6||43.6||17.2||9.0||-0.8|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
Value Stocks May Be Cycling Into Favor
For more than a decade, interest rates in the United States have been very low. During this time, growth stocks, which benefit from low rates, have outperformed value stocks. As of last Friday, the MSCI All-Country World Index (ACWI) Growth, which measures the performance of growth stocks, was up 9.51 percent for the last decade. The MSCI ACWI Value, which measures the performance of value stocks, returned 4.47 percent, over the same period.
It looks as though that may be beginning to change.
Growth stocks are shares of companies that are expected to grow more quickly than other companies. These companies often do not pay dividends. Instead, they reinvest any profits to grow the company quickly. The valuation of growth stocks may seem expensive; however, if the company grows fast the valuation may seem low and the company’s share price may rise. Many technology companies fall into this category.
In 2022, growth stocks have languished. “High-growth technology stocks that sparkled in the coronavirus crisis have entered a bear market as shifting consumer habits and the prospect of sharp U.S. interest rate rises force investors out of one of the most lucrative trades of recent years…the prospect of rate rises has hurt low-profit, high-growth technology stocks because those companies’ future cash flows look relatively less attractive,” reported Laurence Fletcher of the Financial Times.
Value stocks are shares of companies which trade at valuations that are lower than company fundamentals – earnings, dividends, sales, cash flow, and other metrics – suggest they should trade at. Often these are mature companies that pay dividends. Some might even have been growth companies at one time.
Historically, there have been periods when value has outperformed growth. For example, this year, through last Friday, value stocks (MSCI ACWI Value, -6.69 percent) delivered better returns than growth stocks (MSCI ACWI Growth, -20.03 percent).
Recent performance doesn’t mean it’s better to value shares than growth shares or vice versa, as Saira Malik of FT explained. “Of course there have been times when value has beaten growth and vice versa – sometimes by wide margins and for extended periods. But betting on one style over the other based on the magnitude or duration of its past outperformance in any given timeframe is not a sound strategy for maximizing returns. The reason is simple: performance drivers are period-specific, hard to predict and unlikely to be repeated.”
A good choice is diversification. Holding a well-allocated and diversified portfolio won’t eliminate losses, but it can help investors manage risk during periods of market volatility.
Weekly Focus – Think About It
“In the long run, we shape our lives, and we shape ourselves. The process never ends until we die. And the choices we make are ultimately our own responsibility.”
—Eleanor Roosevelt, former First Lady
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