Here’s a couple of stand out charts from the Global Cross Asset Market Monitor. The first one is a look at value vs growth, and the key takeaway (if you haven’t noticed!) is growth stocks have been comfortably and almost consistently outperforming value stocks. This is something I’ve been doing a lot of work on, and will be writing about this in the next weekly macro report. But it’s a really key chart in my view and has parallels with the other chart I wanted to talk about.
Some people might be tempted to say that value investing doesn’t work in an environment of evermore rapid technological innovation and disruption, with the growth companies (those with higher valuations) more often than not actually justifying the premium valuations they get priced at. But history seems to show that all good narratives and extremes of performance come to an end sooner or later. All that’s needed is the right conditions…
And this brings me to the next chart: US cyclicals vs defensives. This is a topic I’ve written about extensively, and is one of the key risks/opportunities I’ve been speaking with clients on. Basically we’ve been through a period of extreme relative performance between the traditionally more cyclical sectors and the defensive sectors. Indeed, this has been a key driver of the bull market in the last couple of years, and has now resulted in lopsided valuations. I continue to believe that this represents somewhat of an Achilles heel for the market, and thus when technicians look at the chart below and notice what appears to be a head and shoulders top and a potential break of the 200-day moving average, it’s probably something to watch even more closely!
