In our March 2017 Economics Weekly , Is There Still Value in this Growth Stock Cycle?, we concluded that “while the growth stock cycle might look a little long in the tooth, there is still further room to run.” Since then, the Russell 3000 Growth Stock Total Return Index has increased by a further 25% against the Russell 3000 Value Stock Index, which has increased by just 8% (17 March 2017–19 April 2018). Clearly, the better option has therefore been to continue riding the growth stock cycle, rather than bailing out early in favour of value (chart 1). However, one year later and with growth stocks now 25% higher and close to 2 standard deviations above their historical return ratio with value, can we still make the same case? In this week’s Economic Weekly, we argue that despite this strong performance, the case for favouring growth stocks in the current environment is still a strong one.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.