US stock market: funds continue to flow into growth stocks
2024-06-19
■ Since June, the ratio of growth stocks to value stocks has sharply increased, indicating a concentration of funds in growth stocks.
■ If we start seeking value stocks, it will further enhance the stability of the US stock market.
The performance gap between the S&P 500 Growth Stocks Index (Growth Stocks) and the Value Stocks Index (Value Stocks) is not just widening, but significantly so. As of the 14th of last weekend, although the S&P 500 index has risen 13.9% since the beginning of the year, growth stocks have led to a staggering 22.8% increase, while value stocks have fallen significantly behind with a mere 3.7% increase. This stark difference in performance should not be overlooked, as it could have significant implications for your investment strategy.
To understand the relative strength of growth stocks and value stocks, we observed the growth stock/value stock ratio, which reflects the difference in profit growth rates between the two and shows an upward trend. Extending the trend line from 2014 to 2019 to the present day, the multiplier has increased from 1.2 times in 2014 to the current 1.9 times. After COVID-19, the positive fiscal expansion and monetary easing made this ratio significantly deviate from the trend line and even rise 2.3 times in the second half of 2021. The real interest rate (US 10-year treasury bond yield minus 10-year expected inflation rate, BEI) fell to more than negative 1%, and growth stocks with anti-solid correlation with the real interest rate rose sharply, which is considered the main reason. Subsequently, since 2022, with the tightening measures of the Federal Reserve, actual interest rates have increased to around positive 2.5%, and the adjustment in growth stocks has been relatively large, with the rate falling below the trend line and dropping to 1.6 times in early 2023.
Although the real interest rate in the United States has remained at a high level of about 2% since the second half of 2023, the growth/value stock ratio has followed a trend line trend but has rapidly increased since June and has now reached 2.1 times. This increase is not just a result of market dynamics but also the concentration of funds flowing into semiconductor and high-tech stocks. The expansion of demand related to artificial intelligence (AI) has been supported in the financial reports and performance prospects of these companies, and the rationality of these expectations will be verified every time financial reports are released in the future. In addition, market expectations for the Federal Reserve's interest rate cut also support this trend, so it's crucial to stay informed about these expectations to make informed investment decisions.
■ If we start seeking value stocks, it will further enhance the stability of the US stock market.
The performance gap between the S&P 500 Growth Stocks Index (Growth Stocks) and the Value Stocks Index (Value Stocks) is not just widening, but significantly so. As of the 14th of last weekend, although the S&P 500 index has risen 13.9% since the beginning of the year, growth stocks have led to a staggering 22.8% increase, while value stocks have fallen significantly behind with a mere 3.7% increase. This stark difference in performance should not be overlooked, as it could have significant implications for your investment strategy.
To understand the relative strength of growth stocks and value stocks, we observed the growth stock/value stock ratio, which reflects the difference in profit growth rates between the two and shows an upward trend. Extending the trend line from 2014 to 2019 to the present day, the multiplier has increased from 1.2 times in 2014 to the current 1.9 times. After COVID-19, the positive fiscal expansion and monetary easing made this ratio significantly deviate from the trend line and even rise 2.3 times in the second half of 2021. The real interest rate (US 10-year treasury bond yield minus 10-year expected inflation rate, BEI) fell to more than negative 1%, and growth stocks with anti-solid correlation with the real interest rate rose sharply, which is considered the main reason. Subsequently, since 2022, with the tightening measures of the Federal Reserve, actual interest rates have increased to around positive 2.5%, and the adjustment in growth stocks has been relatively large, with the rate falling below the trend line and dropping to 1.6 times in early 2023.
Although the real interest rate in the United States has remained at a high level of about 2% since the second half of 2023, the growth/value stock ratio has followed a trend line trend but has rapidly increased since June and has now reached 2.1 times. This increase is not just a result of market dynamics but also the concentration of funds flowing into semiconductor and high-tech stocks. The expansion of demand related to artificial intelligence (AI) has been supported in the financial reports and performance prospects of these companies, and the rationality of these expectations will be verified every time financial reports are released in the future. In addition, market expectations for the Federal Reserve's interest rate cut also support this trend, so it's crucial to stay informed about these expectations to make informed investment decisions.