Chartist's Corner - May 2019
Chartist's Corner - May 2019
We use this chart as an indicator for investors risk preferences and a guideline as to how reckless they can become!
In difficult market conditions investors will favour value stocks, when market conditions are more favourable the preference changes to growth stocks.
However, investors invariably get this wrong persisting with growth stocks when equity markets are overheating and ignoring the defensive virtues of value stocks and vice versa.
Our graph compares the performance of US Growth Stocks and US Value Stocks to the broader US Equity Market.
As you can see the Tech Bubble of 1999/2000 saw growth outperform value by some margin as one of the largest bubbles in US Stock Market history developed; at the time value was under performing and it is these stocks investors should have been moving into rather than chasing the latest growth story.
Fast forward to 2008/2009 and the Financial Crisis and investors perhaps justifiably sought safety in value stocks; however at this point they should have been looking the other way and buying growth stocks that would flourish in the subsequent recovery.
It is the recovery of growth stocks that now lead us to where we are now and once again value looks a safer bet.
