Not all sectors were bloodied in the first week of 2022. US banks have enjoyed a decent start to the year, as have airline stocks and other companies expected to benefit from a broader economic re-opening.
Unlike value stocks, technology and other growth stocks were hammered. The Nasdaq suffered its biggest one-day sell-off in 11 months. So-called spec-tech stocks – speculative and unprofitable tech companies – were especially hurt, with Goldman Sachs's index of loss-making technology stocks down almost 10 per cent in 2022.
Fast-growing tech stocks often underperform when rates are rising, although investors were rotating out of growth companies even in the days prior to the unexpectedly hawkish turn from the Federal Reserve on January 5th.
Globally, growth stocks have returned 22 per cent annually over the last five years, compared to 9.8 per cent for value indices. However, the two investment styles matched each other in 2020, both returning 20 per cent, and a growing chorus of investors argue value stocks will lead markets in coming years as managers rotate out of high-priced names.
One such investor is Albert Bridge Capital's Drew Dickson. Since 2016, notes Dickson, US value stocks have grown earnings expectations by 42 per cent and shares have risen by 50 per cent. During the same period, US growth stocks experienced a 68 per cent increase in earnings expectations but shares soared 173 per cent.
Trees don’t grow to the sky. The relative case for value over growth looks strong.
