Growth stocks outperformed value stocks by a wide margin in the years leading up to the pandemic. Growth also outperformed value in the first ~18 months after the pandemic, but that trend has been flipped on its head since late 2021. You can see the recent convergence between growth and value in the chart below. Entering 2022, the S&P 500 Growth index was outperforming the S&P 500 Value index by ~40 percentage points since the pre-COVID high for the stock market in February 2020. Now, Growth is only outperforming Value by ~8 percentage points.
The shift from growth to value has been even more dramatic in the more economically sensitive small-cap space. Remarkably, the Russell 2,000 Growth index is now DOWN 6% on a total return basis since the pre-COVID peak for stocks on 2/19/20. Six months ago, this index was still up 45% from its pre-COVID high.
Fed Chair Powell first shifted to a tighter monetary stance in November 2021. In just six months since Powell’s pivot, we’ve seen the entire post-COVID bull market for small-caps give up its gains and then some. And this doesn’t even factor in a double-digit percentage point increase in inflation since COVID began that pushes “real” returns for the Russell 2,000 Growth index much deeper into negative territory. Click here to learn more about Bespoke’s premium stock market research service.
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Early Thursday morning, investors were feeling pretty good about the trading week. At that point, the S&P 500 was up 1% on the day and about 2.7% week-to-date, and the index had actually just pushed back above its 200-day moving average.
There was nothing we could identify in the news that caused the S&P to peak around 10 AM ET, but from that point through the closing bell on Friday, the index fell 5.3% in basically as straight of a line lower that you can draw.
Fed Chair Powell did, however, make comments in a speech at the IMF mid-day Thursday where he confirmed that a 50 basis point hike was “on the table” for the May meeting. Markets have been pricing high odds for 50 bps hikes for some time now, but Powell’s comments basically cemented them (for now).
The Powell Fed is known for its jawboning and transparency when it comes to the path for rates. The chart below of equities and fixed income in 2022 tells you what these two asset classes currently think of that jawboning:
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While it is seeing a large bounce today currently up 5% as of this writing, Cathie Wood’s flagship fund, the ARK Innovation ETF (ARK), has had a rough go of it over the past year and change. The ETF peaked in February of last year and has fallen over 60% in the months since then, erasing the entirety of the post-pandemic rally. As for the current holdings making up the ETF, everything has pulled back from post-pandemic highs which were mostly set either in early 2021 or late 2021. To highlight this, in the chart below we show each current holding’s change (in percentage terms) from its respective 5-year high. The average holding is currently down over 70% from its high. (ARKK holdings are released daily at ARK’s website.)
Below is a snapshot of current ARKK holdings and where they’re trading relative to 5-year highs. Year to date, only one stock in the ARKK ETF, Signify Health (SGFY), has managed a positive move as the average YTD decline currently stands at 40.8%. That being said, SGFY is still down over 60% versus its February 2021 high. As previously mentioned, most other holdings similarly peaked in the first quarter of last year while many others peaked more recently last fall. As shown in the table, the average peak date for all ARKK holdings was 3/11/21.
One of the stocks that hit a high last fall is the mega-cap EV giant Tesla (TSLA). Since its November 4th, 2021 high, TSLA has fallen only 18.41%, and it is only down 5% year to date. Even though hardly anyone would wish to see an investment lose nearly a fifth of its value, that is a substantially better result than most other ARKK holdings. For example, Berkley Lights (BLI) down 94% from its 5-year high, while 43% of the ETF’s holdings have fallen by at least 75%. Given that TSLA is by far the largest ARKK holding with a 10.55% weight, its smaller decline relative to the rest of the ETF’s holdings has helped ARKK from falling even more.
With the average ARKK stock down 70% from its 5-year high, it’s going to take a huge rally in the “growth” space to get back to prior levels. As shown at the bottom of the table, the average stock in the ETF now needs to rally 348% to get back to prior highs! Click here to learn more about Bespoke’s premium stock market research service.
Bespoke Investment Group, LLC believes all information contained in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, past performance of any investment is not a guarantee of future results. Bespoke representatives or clients may have positions in securities discussed or mentioned in its published content.
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. There were no changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. You can learn more about our subscription offerings at our Membership Options page, or simply start a two-week trial at our sign-up page.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning each week. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.