Growth vs. Cyclical
The Cyclical Surge Updated
At this point, our work does not yet confirm a longer term shift in market leadership from growth to cyclical. Perhaps such a confirmation will take place in coming months (we suspect it will).
The Cyclical Surge
Last month this publication noted that “deep cyclicals” were intriguing but unimpressive from a technical standpoint. Then in the last two weeks of May, the cyclicals exploded on the upside, especially in the last week of the month.
Prospects: Gilt Edged Growth, Cyclicals and Value Stocks
If you have major positions in the select list of 1990 “Hero” stocks (those big growth names that are up on the year), when should you start trimming back (if ever)? When should you start looking at cyclicals (if ever)? When should you start looking at cheap value stocks (if ever)?
Growth Versus Cyclical
The following chart and commentary regularly appear in the appendix. Since we are adding a new growth component to the equity model this issue we thought this work deserved a place “up front”.
A Hard Look: Growth Versus Cyclical
In October, the market flip flopped with big growth stocks leading and cyclicals and basics mostly lagging. We continue to think underlying market leadership is “growth,” but we are no longer so sure. We have taken a hard look at the “cyclical” argument, including two of our own proprietary earnings momentum tools. From an earnings standpoint, 1987 might be a better earnings year than most expect.
Growth Versus Cyclical
For two months, cyclical stocks have been turning in some very strong relative performance while growth stocks have been fading. This month, we take a close look at this surprising shift. At this point, we still are not at all sure it is for real.
Is It Nifty Fifty Time?
Quality Growth stocks led the market in November and are now also outperforming the market year to date. Now that we have so many value players, is the stage set for an extended period of big growth stock leadership?
And Now What About Quality Growth Stocks?
Our initial May 1984 move into these “Gilt Edged Growth Stocks” has not really been paying off. Herein we re-examine this sector of the market in an effort to determine what is wrong. We did much the same thing a few months ago, concluding these stocks should be good relative performers in 1985. Now we are not so sure and have a “hold” on increasing these holdings.
Now…. What About Quality Growth Stocks?
This issue’s X-Rays and EKGs section takes a hard look at these classy institutional favorites. The conclusion is that 1985 looks like a pretty good year for vintage Growth Stocks, relative to the rest of the market.
Gilt Edged Growth Vs. Cyclical
During May, cyclical stocks fell almost 10.5%, while our Gilt Edged Growth stock index fell 7.4%. Thus, again on a relative basis, growth was better. Momentum now clearly favors growth and we think growth stocks have regained the upper hand.
A Timing Move from Cyclical to “Gilt Edged Growth”
Last issue we discussed the strong possibility of this transition. Now we are pretty sure it has taken place. The equity model portfolio is adjusted accordingly, eliminating the remainder of our Super Cyclical holdings and building positions in “Gilt Edged Growth Stocks.” We have also constructed a new index by which to track and evaluate 25 of the best.
Is It Time to Load Up on Quality Growth Stocks?
Two of our specialized evaluation tools are examined. The Royal Blue Index relative valuation work indicates the higher P/E quality growth issues are now undervalued compared to institutional low P/E favorites. But our Growth Vs. Cyclical timing studies seems to be telling us a major move into these quality growth issues still might be somewhat premature.
Cyclical Stocks May Be Better Than Growth Stocks
During March, the cyclicals outperformed the growth stocks. Growth stocks were clearly superior from mid-1981 through November 1982. But since December, momentum has shifted in favor of the cyclicals. The long-term trend appears to have reversed in favor of the cyclicals.
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