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Growth’s outperformance has started since December 2022 in a contest of declining earnings. Growth stocks are often preferred when the economy is not so strong, because of their superior ability to grow their top-line and continue to thrive even in a not-so-good environment. Instead, value stocks are often preferred when there is strong economic growth, due to their less demanding valuations.

However, as per a recent chart I posted on a weekly report, growth stocks (Magnificent 7) are likely to continue to do well in case of a no landing (while value outperformance in this case might well emerge at a later time, with a delay of 6-9 months, often triggered by excesses in valuations of the growth components), while value stocks would do better on a relative basis (=would fall less) in case of a hard landing. It is also a call on the market – the bulls continue to hope growth will lead; the bears are hoping for a reversion to the mean of their extended valuations (of the 10 largest stocks by market cap – most of the index trades at a valuation of 17x). Until we get additional clarity from earnings, fasten your seat belts …

#investing #macro #centralbanks #fed #interestrates #fixedincome #equities #stockmarket #sp500 #growth #value

Chart from Goldman Sachs H/t
Inflection Point Tom Baldacci

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