It’s no secret that growth stocks have underperformed value stocks over the last twelve months. The trailing twelve-month performance spread (percentage points) between the small-cap growth and large-cap value indices, two opposite ends of the equity market, is currently at -20.5 percentage points. Although this is far above the recent low of -33.9 ppts, the current reading is in the bottom 6% of all days since the mid-1994 (when both the MSCI USA Small Cap Growth and MSCI USA Large Cap Value Index were active). Interestingly, this year’s trailing twelve-month performance spread was the lowest since 2001 (unwind of the dot-com bubble). Funny enough, the spread had hit the highest level since early 2000 in 2021, as excessive performance from small-cap growth stocks has tended to reverse course after reaching extreme levels.

Small-cap growth stocks tend to trade at significantly higher valuation multiples than large-cap value stocks, which is part of the reason that small-cap growth equities have sold off at a higher rate than their counterparts. These stocks also have higher betas, so market moves have a disproportionate effect. These factors have caused the average daily percent change spread between the two indices to reach an extremely elevated level, the highest since 2000 – 2001. This measure of volatility is also yet to roll over, indicating no end to the volatility regime that has been in place. 

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