- Stocks just closed out their best third-quarter performance in a decade, but Bank of America expects growth stocks to soon take a back seat to value names.
- The Russell 1000 Growth Index opened a 36 percentage-point lead over its value-focused peer on Thursday. That’s the biggest outperformance for growth stocks in data going back to 1979, Bank of America said in a note to clients.
- Still, investors’ heavy concentration in growth sets value up for a bounce-back. The bank recommended high-quality value stocks to ride out election-season volatility and the US economic recovery.
- Positioning, valuation dispersion, and “an expected recovery in the profits cycle” point to a near-term rally for value, the team of strategists led by Savita Subramanian added.
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The stock market is hot off of its best third-quarter performance in a decade, and growth names are set to dominate through the rest of the year.
Though stocks sank through the start of September, the S&P 500 still notched a 9% gain in the quarter ended Thursday. Mega-cap stocks such as Apple, Microsoft, and Amazon are on track to post their best year since 1998. Further down the size spectrum, the Russell 1000 outperformed its mid-cap and small-cap peers in the third quarter.
The strong performance proved the “no alternative to stocks” argument is going strong, Bank of America strategists led by Savita Subramanian said in a note to clients. Even after volatility climbed in September, long-dated Treasurys and investment-grade bonds only gained 0.2% and 1.7%, respectively. Gold was on track to beat the S&P 500’s return before falling 3.6% in September.
Within stocks, large growth names have been the clear favorite in 2020. The Russell 1000 Growth Index was up 24% year-to-date on Thursday, trouncing the corresponding