If Momentum and Growth investors thought they were escaping 2020 unscathed, they learned otherwise on Monday. Pfizer’s promising news about a COVID-19 vaccine was met with universal excitement and investors rearranging portfolios—taking gains in long-term winners and plowing into beaten-down cyclical stocks.
The strong market rebound in the second quarter lifted the relative return of Growth vs. Value to an all-time high by the end of June. Chart 1 reveals that the cumulative S&P 500 Growth / Value return spread hit a new record last month, surpassing the previous high reached at the end of the Tech bubble in June 2000.
The consensus view is that the stock market will be fine as long as there’s no recession in sight.The same LEI that has displayed a fine GDP forecasting record has shown essentially no relationship with S&P 500 forward twelve-month performance. In fact the regression line shows a slight negative slope!