Since the end of April, there have been more discussions of whether investors should concentrate now on growth or value stocks and ETFs. This focus became more relevant as many growth-dominated ETFs like the Consumer Discretionary (XLY
Consumer Discretionary Select Sector SPDR Fund
Principal Shareholder Yield Index ETF
SPDR S&P 500 ETF Trust
Looking at the long-term rotation between growth and value stocks can be a surprise to many investors. Even those with experience in the markets since the stock market top in 2000 were surprised to see the clear rotation from value to growth between 2000 and 2008.
This was evident from the long-term chart of the ratio of the iShares Russell 1000 Growth (IWF
iShares Russell 1000 Growth ETF
iShares Russell 1000 Value ETF
During the following bear market, the relative performance analysis indicated that tech and health care were not declining as much as the S&P 500. They would also emerge as leaders in the next bull market
For many, I think the outperformance of value is more clearly visualized when one looks at individual stocks during this period. This chart looks at the performance of Microsoft
Microsoft
Bank of America
From 2001 to 2006 MSFT stayed in a price range of $13 to $20 per share after peaking in March 2000 at $30. By July 2008 BAC had dropped from up 70% to down 30%. As for BAC’s stock price it opened in 2001 at $14.34 and reached $38.81 in October 2007. By February 2009 BAC had dropped to a low of $2.03.
In the years since the US stock markets bottomed in March 2009 most investors and likely all traders have realized that mega-cap technology or growth stocks have been leading the overall market.
This ratio peaked in November 2021(point 1) and declined for most of 2022. The declining ratio in 2022 was evident from the ETF performance in 2022. The tech-heavy Invesco QQQ
Invesco QQQ Trust
The downtrend in the ratio line a, was broken in early 2023 as the MACDs and MACD -His formed bullish divergences as QQQ bottomed (point 2). With most analysts expecting a recession in 2023 very few analysts were bullish about growth stocks early in the year. In 2023 QQQ was up 54% over double the 26% gain for the SPY.
The ratio peaked in February 2024 and has since been in a slight downtrend. The MACDs formed a negative divergence, line c, at the highs and subsequently turned negative. A drop below the uptrend, line b, and a weekly close below the early 2024 low will suggest that there has been a more important turn in the growth/value ratio.
In my selection of ETFs and stocks for my clients, the T&J’s Watch Lists that uses adaptive DTS analysis does play a vital role. The adaptive DTS analysis was developed by my colleague Jerry A.
The adaptive DTS analysis tracks signals for ETFs, stocks, and commodities using time frames ranging from hourly to monthly. This approach is designed to catch both early changes in the short term as well as turns in the longer-term trends.
The results from last week’s T&J’s ETF Watchlist were quite interesting. Jerry A designed both a Growth and Value Gauge which have leading ETFs in each category. The ETFs are scored by whether they closed above their Q_PIV and if the WKS_DTS and DTS are positive or negative. The disparity last week was quite pronounced as even a glance reveals much more red on the Growth Gauge analysis than there is on the Value Gauge.
For Growth, only 50% closed above the Q_Pivot and only 10% had +WKS_DTS. This is in contrast to the Value ETFs where 100% are above the Q-Piv, 90% are +WKS and 72% are positive DTS.
This does favor further gains for the Value ETFs relative to the Growth ETFs. This one-sided performance performance was revealed despite the the overall positive weekly action in a majority of market averages. This is bullish for value right now as it would take many weeks to change the trend in the ratio.
The Dow Jones Utility Average led the averages last week up 3.1% while the SPDR Gold Shares was not far behind as it was up 2.7%. The Dow Jones Industrials was up 2.2% as it outperformed the 1.9% gain in the S&P 500 and surprisingly the 1.5% rally in the Nasdaq 100. On the NYSE, the A/D ratio was 1.8 to 1 positive.
The Spyder Trust (SPY) retested the 20-week EMA two weeks ago suggesting the correction was over. SPY has since had an impressive rally. The upper trendline on the weekly chart of the Spyder Trust (SPY), line a, is now in the $536-$540 area. There is converging support in the $511-$513 area and the rising 20 EMA and 50 MA.
All of the daily and weekly A/D lines are positive as the weekly S&P 500 and NYSE All A/D lines made new highs last week. As was the case last June this projects further new highs for both the S&P 500 and the NYSE Composite.
I have always stressed that ETF investors or traders should do the necessary research so that they understand what they are buying or selling. On the left are the sector weightings for iShares Russell 1000 Value (IWF) which has 21.5 % in financial stocks and 14% iin both industrial and healthcare stocks. These are typical holdings of a value ETF as IWD has only 10.3% in technology.
On the right side are the sector weightings for the iShares Russell 1000 Growth (IWF) with almost 45% in technology as well as 14.9% in Consumer Cyclical and 12.5% in Communication Services. There is just 6.1% in financial stocks.
There are many sites where you can find this information from the symbol of the ETF and then by looking for holdings. When you compare value or growth EFTs be sure to look at how many stocks they have and also what percentage is concentrated in the top ten holdings. A lower percentage and greater number of holdings likely means the ETF is more diverse. In my regular contributions to Forbes.com, I will keep updating you on the growth/value analysis.
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