Short answer: No, not yet.
There’s been barrels of digital ink spilled on the topic of whether the relationship between growth and value stocks has shifted. Ahead of the snap in relative performance I wrote in my Thrasher Analytic letter that there was a risk we’d see a shift favoring value stocks due to the daily ratio chart and the stretched relative performance the ratio was experiencing. By no means did I expect the move to be that quick and severe.
While the move was large, did it truly end the reign of growth stocks? Let’s look at the chart.
Below is a weekly relative performance chart of the two popular Invesco S&P 500 Growth and Value ETFs (Guggenheim Invest S&P 500 Pure Growth (NYSE:RPG) and Guggenheim Invest S&P 500 Pure Value (NYSE:RPV)). When the line is rising, that means RPG (growth) is outperforming RPV (value). For the last several years the ratio has been in a wide range with a ceiling around 1.8 (red horizontal line on the chart below). When growth stocks lead value up to this point, we saw a shift in leadership favoring value. That was until we saw a breakout in the ratio earlier this year when growth stocks took things up a gear and set a new multi-year high in the ratio between RPG and RPV.
Then another period of rotation happened. And it caught a lot of traders by surprise by just how deep the move occurred. In fact, we’ve only seen two previous 1-week shifts in relative performance favoring value since 2010 (bottom panel). What’s noteworthy of the previous two major dips was that they occurred near the start of new intermediate-term trends favoring value: September 2011 and February 2016. But they also occurred when the broad market was experiencing double digit corrections, with the last pain point being the bottom falling out for growth stocks and the resulting move higher in the market, which ultimately favored value stocks for a period of time.
This time around we aren’t in a broad market decline, instead we’re just a few whispers of an all-time high, so I’m not completely sold on the idea we can make a fair market comparison to ’11 and ’16 just yet.
Now let’s look at the data on the right of the chart, the latest price action for the ratio of RPG and RPV. The move lower took the ratio right to 1.8 intra-week (not shown by the line chart, but trust me or look at an HLC version of this chart) and stopped. Then we saw growth take back control and move the ratio higher. This all took place with momentum (top panel) remaining in its bullish range. While the daily chart of the ratio shows a bearish divergence in momentum, the weekly chart does now. Instead, we didn’t even see the RSI reach the prior lows set in 2017 and 2018.
Therefore I think it’s still too premature to put a fork in growth’s leadership and call it done. The trend remains above the breakout point and momentum is holding on to its bullish range. Neither of these two points are bearish for growth’s up trend in relative performance. Now if we do experience another round of bearish pressure for the ratio and we get a solid close under 1.8 on the weekly chart with momentum until to hold above the ’17/’18 low then we may in fact see a larger-term shift in leadership. As always, I wait for price confirmation.
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