The market indices were mixed last week, as the Dow (+2.3%) and S&P 500 (+1.3%) were up, while the tech-heavy NASDAQ was down 1.1%. Last week marked the beginning of the quarterly earnings season, and many of the big banks showed a significant reduction in their profits, but that’s also because they set aside billions of dollars to mitigate against loan losses later in the year, as they anticipate many defaults due to COVID. As stated by John Hancock Investment Management, last week’s mixed results was a divergence from the trend of tech-heavy growth stocks that have outperformed their tech-light value stocks for the past 4 years. To elaborate on that comment, I have copied a graph that depicts the difference between the Russell 1000 value and growth stocks for the past 21 years, and I have copied that chart below. Note that Russell 1000 reflects large company stocks, and the data is through June 30, 2020.
As you can see by the chart, we are exhibiting an enormous difference of 26.1%, as also evidenced by the YTD difference between the Dow (-5.3%) and the NASDAQ (+17.7%). These differences are astounding, the likes of which we haven’t seen since 1999, which was the height, and also the end of the technology bubble. Please don’t perceive this as me making a statement that we’re in or near the end of a bubble, but I’m just showing the remarkable differences we have seen in the past 4 years. In hind sight, I will admit that we over weighted value stocks in 2018 after seeing such a vast difference in 2017, as we were led to believe that value stocks were undervalued relative to their growth counterparts. That said, we have been watching this very closely, because we certainly don’t want to get caught up in that craze and come crashing down like tech did in 2000.