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It’s coming. Is it here? Perhaps. Or maybe not. But sooner or later, it is coming. Preparing now for the eventuality seems the most prudent course.
Investment markets share certain characteristics with earthquakes. Pressures mount as forces shift out of balance. Hopefully gradually, and sometimes most suddenly, these forces revert to a more balanced state and the process begins again.
Seismology and investing share similar objectives of trying to predict largely unpredictable breaking points, leading to the release of built-up imbalances. For earthquakes and investing, long periods of mounting pressure create the potential for catastrophic outcomes, as the sudden rebalancing of underlying forces mark the end of one cycle and the start of a new one.
The pressures or imbalances seem obvious, but trends persist nonetheless. Until they don’t. Investors, like homeowners considering earthquake insurance, are best served by preparing for these inevitabilities, even while recognizing the limited predictability.
Increasing Pressure On A Value Recovery
For the last few years, value-oriented investors have been waiting (and waiting) for the inevitable "big one" to arrive and finally compensate them for an agonizing wait. They’ve been watching their growth counterparts, the metaphorical builders of mansions on coastal fault lines, enjoy a surprising windfall.
While a value recovery seems likely by its repeated occurrence throughout market history, it feels to many like we are waiting for something that might never come. The recent performance of growth stocks, on the other hand, might be described as its own tsunami; a relentless, seemingly unstoppable force arising from its own set of circumstances leading to its own big one.
At the time of this writing, growth stocks — as measured by the S&P 500® Growth Index — have gained nearly 35% over the past year on a total return basis. Value stocks, in contrast, have pretty much gone nowhere, with a meager gain of 3.3%.
End claims sourced from SP&P 500® Index, as of Dec. 10, 2020 and MSCI ACWI ex-U.S. Index, as of Dec. 10, 2020.
Disclaimer: Opinions expressed by readers don’t ...
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End claims sourced from SP&P 500® Index, as of Dec. 10, 2020 and MSCI ACWI ex-U.S. Index, as of Dec. 10, 2020.
Disclaimer: Opinions expressed by readers don’t necessarily represent Russell’s views. Links to external web sites may contain information concerning investments other than those offered by Russell Investments, its affiliates or subsidiaries. Neither Russell Investments nor its affiliates are responsible for investment decisions with respect to such investments or for the accuracy or completeness of information about such investments. Descriptions of, references to, or links to products or publications within any linked web site does not imply endorsement of that product or publication by Russell Investments. Any opinions or recommendations expressed are solely those of the independent providers and are not the opinions or recommendations of Russell Investments, which is not responsible for any inaccuracies or errors.
Investing in capital markets involves risk, principal loss is possible. There is no guarantee the stated outcomes in the presentation will be met.
This is a publication of Russell Investments. Nothing in this publication is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The contents in this publication are intended for general information purposes only and should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional concerning your own situation and any specific investment questions you may have.
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