A Tale of Two Markets: Value and Growth

Ed Mertiri |

A Tale of Two Markets: Value and Growth

Broad markets have been in decline this month, once again growth lead the decline. Since the early January peak there has been a sharp contrast in how value and growth markets have performed. The performance spread between the S&P 500 Value and S&P 500 Growth indices is now over 13.5%. While the S&P 500 is down almost 8% YTD, the largest contribution has been from inflation sensitive high growth companies.

Since February broad markets seem to be forming a consolidation pattern, testing February and March highs. Investors are watching to see if the March lows remain as support levels. This will likely depend on how markets respond to the Federal Reserve actions, including both rate increases and quantitative tightening.

Weeks Ahead:

As Q1 earnings reports start, dominated by Financials in the next two weeks, we can expect more volatility. The S&P 500 Financials sector expects a -22% contraction in profits for Q1, and further contractions in all remaining 2022 quarters. Financials has the worst expectations of all sectors in 2022, by a large margin. So, we can expect less-than-optimistic comments in the headlines, much like the comments quoted from JP Morgan’s CEO last week. This could put more pressure on equities, concentrated in growth sectors even though Financials are traditionally considered value. Cautious investors may want to stay on the sidelines in cash until there is more clarity towards the end of earnings season.

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