This is Brad Barrie, Chief Investment Officer and Portfolio Manager with Dynamic Wealth Group. Welcome to this market and economic update. In this video, we’ll discuss how investors can navigate a shifting market as performance broadens beyond large cap technology companies.
The market rally this year has been driven by growth stocks, including large technology stocks related to artificial intelligence. However, we’ve recently seen other parts of the market perform well including small cap and value stocks. Adding to this rally, recent inflation data suggests that the Fed could begin reducing rates soon, providing a big boost to many parts of the market.
While investing trends come and go, how can investors understand the current market and economic environment while taking advantage of long-term market growth?
First, this chart shows the performance of different styles and factors across the market, with returns reindexed to zero a year ago. It illustrates that though broad stock market indices have performed well, there is variation in performance of different sizes and styles.
Large cap tech stocks have garnered a lot of attention for their strong performance, thanks in large part to demand for artificial intelligence, and the Magnificent Seven stocks which gained over 190% over the past 18 months.
However, as you can see from the chart, other areas of the market are also beginning to participate in the rally. Improving inflation and the increased likelihood of approaching rate cuts have spurred both small cap and value stocks in particular.
Small cap stocks, for instance, tend to benefit when rates decline since they have more limited financing options than larger companies. They also tend to be more U.S.-focused so positive economic news can disproportionately impact their stock market performance.
A key adage to remember is that past performance, is just that, …, past. One doesn’t drive their car just looking at the rearview mirror. Looking ahead is much more important.
Next, this chart shows that growth stocks are outperforming value stocks right now, but it has not always been this way. Growth and value have traded leadership over the course of many years.
The chart tracks the returns for the Russell 3000 growth, value, and standard indices indexed to zero in 1995. The blue shaded area represents the spread between the growth and value returns.
As you can see, growth stocks outperformed in the late 1990s and early 2000s, but when the dot-com bubble burst, value stocks took over for much of the 2000s. The strong demand for technology stocks over the past year ushered in a new wave of strong growth performance with the exception of the 2022 bear market.
The performance differences between value and growth have been the source of much academic research over the past several decades. The key for investors is that both are important for diversified portfolios since it’s difficult to predict what may drive the next stage of the rally.
As we have said time and again, our philosophy focuses on not attempting to predict the future, but instead prepare for the future, regardless of outcomes.
Finally, the bars on this chart show the next year earnings growth estimates broken down by size and style. The black diamonds show estimates for P/E ratios over the next 12 months.
Despite a recent broadening in the bull market rally and volatility in growth and value stocks, valuations still differ significantly with value and growth trading leadership over the past year.
Large cap growth equities have by far the highest estimated P/E ratio over the next year following strong growth performance year-to-date. Since expected returns are highly dependent on valuation levels, it’s important to diversify across other styles as well. Small cap value, as an example, has a much lower valuation ratio even though investors expect earnings growth rates comparable to large cap growth stocks.
All of these charts highlight the importance of diversifying across different styles in a portfolio. While there is still market enthusiasm for large cap tech companies, investors who hold different parts of the market can benefit from all of these opportunities while ensuring that their portfolios are aligned with their long-term financial goals.
I hope you found these high-level insights valuable. If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, please visit our website DynamicWG.com, or reach out directly by emailing us at: Info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired. Until next time, take care everyone, and make smart, logical & fact-based financial decisions.
Disclaimer:
Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities. No part of this should be taken as investment advice. Consult your financial advisor for specific investment recommendations tailored to your specific situation.
Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.
Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.
Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.
< Commentary
Broadening Market Performance
This is Brad Barrie, Chief Investment Officer and Portfolio Manager with Dynamic Wealth Group. Welcome to this market and economic update. In this video, we’ll discuss how investors can navigate a shifting market as performance broadens beyond large cap technology companies.
The market rally this year has been driven by growth stocks, including large technology stocks related to artificial intelligence. However, we’ve recently seen other parts of the market perform well including small cap and value stocks. Adding to this rally, recent inflation data suggests that the Fed could begin reducing rates soon, providing a big boost to many parts of the market.
While investing trends come and go, how can investors understand the current market and economic environment while taking advantage of long-term market growth?
First, this chart shows the performance of different styles and factors across the market, with returns reindexed to zero a year ago. It illustrates that though broad stock market indices have performed well, there is variation in performance of different sizes and styles.
Large cap tech stocks have garnered a lot of attention for their strong performance, thanks in large part to demand for artificial intelligence, and the Magnificent Seven stocks which gained over 190% over the past 18 months.
However, as you can see from the chart, other areas of the market are also beginning to participate in the rally. Improving inflation and the increased likelihood of approaching rate cuts have spurred both small cap and value stocks in particular.
Small cap stocks, for instance, tend to benefit when rates decline since they have more limited financing options than larger companies. They also tend to be more U.S.-focused so positive economic news can disproportionately impact their stock market performance.
A key adage to remember is that past performance, is just that, …, past. One doesn’t drive their car just looking at the rearview mirror. Looking ahead is much more important.
Next, this chart shows that growth stocks are outperforming value stocks right now, but it has not always been this way. Growth and value have traded leadership over the course of many years.
The chart tracks the returns for the Russell 3000 growth, value, and standard indices indexed to zero in 1995. The blue shaded area represents the spread between the growth and value returns.
As you can see, growth stocks outperformed in the late 1990s and early 2000s, but when the dot-com bubble burst, value stocks took over for much of the 2000s. The strong demand for technology stocks over the past year ushered in a new wave of strong growth performance with the exception of the 2022 bear market.
The performance differences between value and growth have been the source of much academic research over the past several decades. The key for investors is that both are important for diversified portfolios since it’s difficult to predict what may drive the next stage of the rally.
As we have said time and again, our philosophy focuses on not attempting to predict the future, but instead prepare for the future, regardless of outcomes.
Finally, the bars on this chart show the next year earnings growth estimates broken down by size and style. The black diamonds show estimates for P/E ratios over the next 12 months.
Despite a recent broadening in the bull market rally and volatility in growth and value stocks, valuations still differ significantly with value and growth trading leadership over the past year.
Large cap growth equities have by far the highest estimated P/E ratio over the next year following strong growth performance year-to-date. Since expected returns are highly dependent on valuation levels, it’s important to diversify across other styles as well. Small cap value, as an example, has a much lower valuation ratio even though investors expect earnings growth rates comparable to large cap growth stocks.
All of these charts highlight the importance of diversifying across different styles in a portfolio. While there is still market enthusiasm for large cap tech companies, investors who hold different parts of the market can benefit from all of these opportunities while ensuring that their portfolios are aligned with their long-term financial goals.
I hope you found these high-level insights valuable. If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, please visit our website DynamicWG.com, or reach out directly by emailing us at: Info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired. Until next time, take care everyone, and make smart, logical & fact-based financial decisions.
Disclaimer: