Dividends (DVY) Get Payback on Growth (VUG)

Sep 19, 2023

Checking in on our Trend Analyzer tool, the clear biggest losers over the past week have been growth stocks.  As shown in the snapshot below, almost all of the growth ETFs regardless of market cap have fallen over 1% in the past week. Although these are the same groups that have posted some of the biggest gains on a year to date basis, that recent drop has brought them back below their 50-DMAs with some like the Russell Mid-Cap Growth ETF (IWP) and small-cap Russell 2,000 Growth ETF (IWO) falling into oversold territory.

On the other end of the spectrum, there are only a small handful of ETFs in this screen that have risen over the past five days. The strongest of those has been the Select Dividend ETF (DVY) with a nearly 1% gain in the past week.  That has cut into modest year to date declines (few other ETFs in this screen are also down year to date, but those are also dividend or low volatility focuses). In other words, price action over the past week has to some degree been a rotation of year to date performance.

In the charts below, we show the ratio of the Dividend ETF (DVY) versus the Growth ETF (VUG).  The ratio has been in a steep downtrend throughout 2023 meaning growth has trumped dividend payers.  However, this month’s reversal of that outperformance has resulted in the ratio to break out of that downtrend.  Zooming out, that rebound in the ratio has also coincided with an uptrend line off of late 2020 and 2021 lows. Time will tell how lasting this reversal in relative performance will be, but from a purely technical standpoint, it has come at a logical point.