Growth Vs. Value: Banks May Be Ready To Outperform Big Technology

There are several disparities taking place in the market, and one of them has been the growth versus value trade. While it may seem like this outperformance can go on forever, higher rates may change that dynamic.

Nasdaq Vs. Russell

For example, the Nasdaq 100 was historically high versus the Russell 2000 index for quite some time, but that gap has now completely closed in recent months as the Russell 2000 has surged.

In October, at a point, the Nasdaq 100 traded at its highest level to the Russell 2000 since the dot.com bubble in the year 2000. But not surprisingly, there has been a massive reversion, with the Russell now trading back to levels last seen in March versus the Nasdaq 100.

It isn’t that the Nasdaq 100 has fallen; it is just that the Russell 2000 has surged faster than the Nasdaq in recent months.

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Semis Vs. S&P 500

We are now seeing a similar type of trade in the S&P 500 versus the SOX semiconductor index. The SOX index is currently trading at its highest level relative to the S&P 500 since the dot.com bubble in the year 2000. Again, an indication that the S&P 500 is likely to outperform the semiconductor sector going forward. Whether that means the SOX falls or whether the S&P 500 rises may not matter. What matters is that the SOX index may struggle compared to S&P 500 in the months ahead.

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Growth Vs. Value

Growth stocks have also massively outperformed value stocks by a wide margin, based on the S&P 500 Growth ETF (SPYG) versus the S&P 500 Value ETF (SPYV). Growth is now beating Value by its widest margin since the dot.com bubble. Again, perhaps a sign that value is likely to outperform growth in the future.

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The one thing each of these relationships has in common is the long underperformance period that followed. Whether that is about to happen again, one cannot know for sure. But if history is a guide, then the answer is yes, the growth and technology sectors are likely to underperform.

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Disclosure: Michael Kramer And The Clients Of Mott Capital Own Apple, Microsoft, Alphabet, Tesla 

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