In a decade of Wall Street wisdom, the death of the cheap-money era is redrawing the earnings map of Corporate America. This upends what stocks are bargain buys or high fliers in tomorrow’s market. A revenue slowdown and a new commodity cycle are weighing on Big Tech. Meanwhile, Amazon.com and Netflix Inc. have unexpectedly transformed into value stocks, thanks to the FAANG group. On the other hand, Exxon Mobil has earned a coveted growth-equity Halo.
The days when tech mega caps fit easily into the category of fast-growing businesses are gone. This is due to the inflation-lashed economic trajectory. On the other hand, oil company shares are trading at a low price. Growth-fund managers are now buying shares previously considered value bets as the bull market continues to surge. Therefore, it’s the other way around.
The biggest index managers are miles apart when defining the likes of Amazon and Exxon. Time by time, the lines between two of the most popular stock investing methods become clearer. Stock managers, who are rearranging their holdings for the first time, are having even more trouble.
Lines are increasingly blurring between value and growth investing
Discretionary and quantitative managers have different ideas for investing styles like value and growth. Yet, index classifications matter, and the current divergence in viewpoint is significant. These techniques, especially in the exchange-traded fund market, have been shown to work well with around $800 billion in cash.
Growth investing is a pure and simple bet on technology during a decade of a sluggish economy and easy monetary policy. It was the fastest-growing industry in terms of stock prices and earnings. On the other hand, software and internet companies saw their growth slow in a scenario of rising bond yields. By and large, after the pandemic-induced boom. Meanwhile, supply shock caused by Russia’s invasion of Ukraine and a recovery in global demand fueled the commodity prices in a super cycle of sorts.
Now it’s difficult for equity investors to tell which businesses are cheap in theory and which will show long-term earnings growth. While they are still down significantly from their 2021 peak, shares are up 8.3% this year compared to the S&P 500’s 3.5%.