Value vs Growth

In the ever-evolving world of investing, the age-old debate between value and growth stocks continues to intrigue investors. The recent trends and shifts in the market have brought this discussion back to the forefront. Here's a deep dive into the current dynamics:

📌 Historical Performance: From 2015 to 2021, growth stocks, represented by the iShares S&P 500 Growth ETF (IVW), dominated the scene. However, 2022 saw a shift with growth stocks plummeting by 30%. On the other hand, value stocks, represented by the iShares S&P 500 Value ETF (IVE), consistently outperformed growth throughout the year. Fast forward to 2023, and the equity market is witnessing a resurgence. Growth equities have surged year to date, while value equities have also seen a commendable rise just not as impressive.

📌 The Long-Term Narrative: Over the years, both value and growth have had their moments of glory. A notable divergence between the two was observed in recent times, but the downturns faced by growth stocks in 2022 have bridged this gap to some extent. Interestingly, if one had invested in either value or growth in 1984, the returns today would be nearly identical, showcasing the cyclical nature of these investment strategies.

📌 Defining Value and Growth:

• Value Stocks 📊: These are companies believed to be undervalued by the market. They typically have lower P/E ratios, offer consistent income streams, and are less volatile.

• Growth Stocks 🚀: These are companies that showcase rapid revenue growth. They have higher P/E ratios, reinvest their earnings, and are more volatile.

📌 Performance Dynamics: Growth stocks shine during bull markets, falling interest rates, and rising corporate earnings. However, they lag during economic slowdowns. Conversely, value stocks excel during bear markets, economic recessions, and the initial phases of economic recovery.

📌 The Role of Interest Rates: The surge in long-term treasury bond rates last year led to a rotation out of growth stocks into value stocks and fixed income. However, with treasuries trading sideways recently, growth stocks have regained favor in 2023.

📌 Considering Market Capitalization: When dissecting value and growth companies by size (large, mid, small), distinct performance differences emerge. For instance, there are specific ETFs tailored for different market caps, such as the Invesco Dynamic Large Cap Value ETF (PWV) for large-cap and the iShares Morningstar Mid-Cap Value ETF (IWS) for mid-cap.

Investment Ideas 💡:

1. Diversified Portfolio: Given the cyclical nature of value and growth, consider a diversified portfolio that includes both to hedge against market volatility.

2. Watch the Interest Rates: With the historical impact of interest rates on growth and value stocks, keep a close eye on treasury bond rates for potential investment opportunities.

Trade Ideas: Let’s take a look at the SPYG (S&P 500 Growth ETF) and the SPYV (S&P 500 Value ETF).

SPYG: Currently, our take on this is we are in a 5 wave bullish count (see Elliot Wave Theory). The more aggressive trader can claim wave 4 lows are in and put a stop loss below 60.27, targeting the gaps up (in blue) and the wave 5 target of 66.94. The more patient/cautious trader can look to see if there is still some room down to go for wave 4 and look to enter below 60.27 with a stop loss below 58.11, again targeting the gaps up to fill and wave 5 target of 66.94. Keep an eye on your MACD for a potential bullish crossover and notice how the stock price reacted after a bullish crossover in March.

SPYV: Currently trading in a range, we like this for longs above 42.95 with a stop below there targeting the Price Targets Above of 43.61, 45.07, and 46.92. However, if this breaks below 41.83 we like this for shorts with a stop loss above 41.83 targeting the 40.02 level below. The past 3 times the stock hit oversold territory on the RSI it put in a nice bottom and rallied afterwards. Can that pattern repeat itself again?

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